NEW YORK: Tokyo’s Topix index dropped 1.3 per cent on Tuesday, a seventh straight decline, while Seoul’s Kospi index and Hong Kong’s Hang Seng both shed 1.4 per cent. Shares opened lower in Europe, with declines across all of the region’s major bourses and the composite Stoxx 600 index down 0.8 per cent.
Investors shifted into US sovereign debt, considered a shelter during economic uncertainty, sending the 10-year Treasury yield down 5.1 basis points to 1.537 per cent. The 30-year yield fell 6 bps to 1.9847 per cent, slipping below 2 per cent for the first time in two weeks.
China’s currency was also under pressure. The onshore renminbi dropped 0.3 per cent, weakening to Rmb7 against the US dollar. The offshore variant, which trades outside mainland China, slipped by a similar margin. Japan’s yen, which attracts inflows during times of uncertainty, climbed against the US currency, while Brent crude oil fell 1.6 per cent to $56.75 per barrel.
California-based Apple on Monday warned that “worldwide iPhone supply will be temporarily constrained” due to the coronavirus epidemic and that factories run by its suppliers in China were resuming work more slowly than expected.
Shares in Apple suppliers dropped on Tuesday. Austrian chipmaker AMS and Frankfurt-listed Dialog Semiconductor were the two worst performing major companies in Europe, each falling around 4 per cent.
Hong Kong-listed AAC Technologies, a maker of acoustic parts for Apple, fell 3.7 per cent, while chipmaker Taiwan Semiconductor Manufacturing Co declined 2.9 per cent and iPhone assembler Foxconn Technology, which trades under the name Hon Hai Precision, slid 0.6 per cent.
“This unexpected news confirms the worst fears of [Wall Street] that the virus outbreak has dramatically impacted iPhone supply from China/Foxconn with a demand ripple impact worldwide,” said Daniel Ives, an analyst at Wedbush Securities.
“While we have discussed a negative iPhone impact from the coronavirus over the past few weeks, the magnitude of this impact to miss its revenue guidance midway through February is clearly worse than feared.”
Beijing has imposed restrictions on the movement of people and rules on when certain types of companies can restart operations, in a bid to contain the spread of the virus. The coronavirus has killed 1,868 people and infected 72,436 in China as of Monday, according to the country’s National Health Commission.
Economists expect China’s economic growth to slow sharply in the first quarter, which could ricochet across other regional economies. South Korea’s President Moon on Tuesday called for “all possible measures” to support the country’s economy. Meanwhile, concerns are rising that Japan may fall into recession.
Japan’s economy contracted at a rapid rate in the fourth quarter of 2019 due to a tax increase, and the coronavirus outbreak is expected to weigh heavily on first-quarter growth. A recession is typically defined as two consecutive quarters of declining gross domestic product.
“There is uncertainty, not just about the epidemiological progress of the virus, but effects on the global economy,” Citigroup analysts said on Tuesday.