A virus outbreak in China is sending shockwaves through the country’s stock market, denting what had been growing enthusiasm toward shares.
Consumer shares were among leading decliners in the FTSE China A50 Index of large caps Tuesday, which logged its biggest drop in six months. Investors sold crowd favorites such as liquor makers Wuliangye Yibin Co. and Kweichow Moutai Co., while travel operator China International Travel Service Corp. fell 3.6%. The yuan slid as much as 0.5% onshore and offshore, trading on the weak side of 6.9 per dollar.
The declines come just days before China celebrates the Lunar New Year, a typically strong season for traveling and consumer spending. Now, there’s doubt that markets can continue their ascent after the week-long break.
“People are getting nervous and cashing out,” said Wang Chen, a Shanghai-based partner with XuFunds Investment Management Co. He said his firm has cut some stock positions this week. “We have a long holiday coming up and the virus outbreak, and there was a bit too much hype in the market recently. Outflows via the northbound links and upcoming earnings season are also adding to caution.’
Northbound stock links with Hong Kong will be shut for five trading days from Friday. After months of buying, foreigners had sold a net 7.1 billion yuan ($1 billion) of mainland-listed shares on Tuesday, the most since mid-May when they dumped a record 10.9 billion yuan of shares in one day.
It marks an abrupt shift in market confidence, which was riding high as Beijing signed a phase one trade deal with the U.S. and data signaled China’s economy was stabilizing. Investors had driven margin debt past the key 1 trillion yuan level to the highest since February 2018. Privately offered funds boosted their stock positions to the highest since early 2015, and analysts were the most bullish on large caps since late 2014.