Asian shares sink after Dow hits bear level on pandemic news

TOKYO — Asian shares plunged Thursday after the World Health Organization declared a coronavirus pandemic and indexes sank on Wall Street.

Japan’s benchmark Nikkei 225 dived 4.9% to 18,468.99. Australia’s S&P/ASX 200 dropped 6.6% to 5,348.60. South Korea’s Kospi dipped 4.7% to 1,815.98. Hong Kong’s Hang Seng lost 3.8% to 24,269.06, while the Shanghai Composite index shed 1.3% to 2,928.80.

Thailand’s benchmark plunged 8%.

“Even though we do have substantial support coming through from governments and central banks alike, the dispersion of the virus so far continues to mark the risks of dragging the global economy into recession,” said Jingyi Pan, an analyst at IG in Singapore.

On Wall Street, the Dow’s loss dragged it 20% below the record set last month and put the index in a bear market. The broader S&P 500, which professional investors watch more closely, is a single percentage point away from falling into its own bear market, which would end the longest bull market in Wall Street history.

The decline has been one of the swiftest sell-offs of this magnitude. The fastest the S&P 500 has ever fallen from a record into a bear market was over 55 days in 1987.

Vicious swings like Wednesday’s session are becoming routine as investors rush to sell amid uncertainty about how badly the outbreak will hit the economy. The day’s loss of 1,464.90 points wiped out a 1,167-point gain for the Dow from Tuesday and stands as the index’s second-largest point drop, trailing only Monday’s plunge of 2,013.

The S&P 500 plunged 4.9% to 2,741.38, while the Nasdaq gave up 4.7% to 7952.05.

With Wall Street already on edge about the economic damage from the virus, stocks dove even lower Wednesday after the World Health Organization cited “alarming levels of inaction” by governments in corralling the virus when it made its pandemic declaration.

Investors are calling for co-ordinated action from governments and central banks to stem the threat to the economy from the virus. Doubts are rising about the U.S. response even after President Donald Trump announced European travel restrictions and Congress unveiled a multibillion-dollar aid package the House could vote on Thursday.

Investors know that lower interest rates or government spending programs alone will not solve the crisis. Only the containment of the virus can do that. But such measures could help support the economy in the meantime, and investors fear things would be much worse without them.

“The government probably should have been thinking about stimulus last month,” said Kristina Hooper, Invesco’s chief global market strategist. “Every day that passes makes the economic impact of coronavirus that much worse.”

Many investors are worried that a divided Congress will have trouble agreeing to any plan, she said.

For most people, the new coronavirus causes only mild or moderate symptoms, such as fever and cough. For some, especially older adults and people with existing health problems, it can cause more severe illness, including pneumonia.

The vast majority of people recover from the new virus, but the fear is that COVID-19 could drag the global economy into a recession by hitting it from both sides — supply and demand.

On the supply side, companies may have fewer things to sell as factories shut down and workplaces dim the lights because workers are out on quarantine. On the demand side, businesses see fewer customers when people huddle at home instead of travelling or dining out.

United Airlines has lost more than a third of its value since Feb. 21 because many people don’t want to risk flying. Cruise lines have also been hard hit. Even Apple, which entered 2020 after making sharp gains, has shed 6% since the beginning of the year with the slowdown in output of iPhones in China.

The coronavirus outbreak has moved so fast that its impact has not yet shown up in any U.S. nationwide economic data. Many economists still think the U.S. can avoid a recession, particularly if the disease is under control by the early summer.

But most also think the odds of a recession have risen significantly.

Many analysts say financial markets will continue to swing sharply until the number of new infections stops accelerating. In the United States, the number of cases has topped 1,000. Worldwide, more than 126,000 people have been infected, and over 4,600 have died.

“There’s a real feeling that we don’t know where this ends,” said Brad McMillan, chief investment officer for Commonwealth Financial Network.

Italy’s government announced $28 billion in financial support for health care, the labour market and families and businesses that face a cash crunch due to the country’s nationwide lock down on travel. Many other governments have come up with similar plans.

Trump hinted at plans for tax cuts and other economic relief late Monday, but he has yet to unveil any details. Lawmakers have resisted his proposal for a cut to payroll taxes.

“The package must be large enough to restore confidence, but targeted enough to provide immediate relief to where it is needed most,” Mike Ryan, UBS Global Wealth Management’s Americas chief investment officer, wrote in a report.

Even a climb in Treasury yields, which has been one of the loudest warning bells on Wall Street about the economic risks of the crisis, wasn’t enough to turn stocks higher. The yield on the 10-year Treasury was 0.76% from 0.83% late Wednesday. That’s a sign of diminished demand for safe investments.

For all the fear in the market and selling by huge institutions, many regular investors have been holding relatively steady.

“People, by and large, are keeping their heads right now,” said JJ Kinahan, chief market strategist at TD Ameritrade.

Strategists at Goldman Sachs on Wednesday sharply cut their expectations for earnings growth this year, saying it will lead to the end of the bull market for the S&P 500, which began more than a decade ago.

A plunge in crude prices has wiped out profits for energy companies, while record-low Treasury yields are squeezing the financial sector. Strategists say S&P 500 earnings per share could fall enough to drag the index down to 2,450 in the middle of the year. That would be a nearly 28% drop from its record.

Goldman Sachs, though, also says it expects the drawdown to be short, with earnings rebounding later in the year as the pain from the coronavirus wanes. It says the S&P 500 could climb back to 3,200 by the end of the year.

In other trading, benchmark U.S. crude lost $1.29 to $31.69 per barrel in electronic trading on the New York Mercantile Exchange. It lost $1.38 to $32.98 per barrel on Wednesday. Brent crude, the standard for international pricing, gave up $1.50 to $34.29 per barrel.

The dollar weakened to 103.98 Japanese yen from 104.53 yen on Wednesday. The euro rose to $1.1291 from $1.1271.

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AP Business Writers Stan Choe, Damian J. Troise and Alex Veiga in New York contributed to this report.

Yuri Kageyama, The Associated Press