Asian shares higher after selloffs spurred by Chinese virus

Shares mostly rose in early Asian trading on Wednesday after a slide in US stocks overnight as a virus outbreak in China rattled global markets.

Japan's Nikkei 225 index climbed 0.6% to 24,013.15 and the Kospi in South Korea surged 0.8% to 2,256.95. In Hong Kong, the Hang Seng jumped 0.8% to 28,216.78. The S&P ASX/200 in Sydney gained 1% to 7,134.60, while the Shanghai Composite index edged 0.2% lower to 3,045.03. Shares fell in Singapore and Malaysia but rose in Indonesia.

There was little regional news apart from the virus to drive trading, though South Korea reported better than expected economic growth in the last quarter of 2019. Its GDP rose 1.2% from the previous quarter and better than the previous quarter's 0.4% growth. Economists attributed the stronger growth to increased government spending, reduced trade friction and a recovery in demand for semiconductors.

“It continues a noticeable trend of improving data in Asia over the past few months, which does imply a recovery is underway," Jeffrey Halley of Oanda said in a commentary.

However, he noted that a “soft underbelly" of risk remains, as evidenced by the worldwide retreat by markets Tuesday as authorities confirmed the new coronavirus can be spread between humans and not just between animals and humans as earlier suspected.

Wall Street's selloff Tuesday snapped a three-day winning streak by the S&P 500. Investors worry that the new coronavirus spreading in the world’s second-largest economy could hurt tourism and ultimately economic growth and corporate profits.

That led many to shift into bonds and defensive sector companies, especially in health-related industries. On Wednesday, Chinese authorities reported the number of people confirmed infected had risen to 440, with nine deaths.

The number of cases of the virus first reported in the central Chinese city of Wuhan jumped just as Chinese were preparing to make billions of trips for the Lunar New Year travel season.

Within the S&P 500, stocks of US companies that cater to Chinese tourists had some of the biggest losses, along with general travel companies, such as casinos and airlines. Along with banks, industrial and energy stocks accounted for a big share of the selling. Those losses outweighed gains in real estate stocks, utilities and household goods makers. Traders also shifted money into US government bonds, sending yields lower.

“From an investment standpoint, the risk with any virus is in the scope of its economic impact, and the mere fact that this has spread from China overnight to the US so quickly reinforces the idea that the negative fallout could be global rather than local,” said Alec Young, managing director of Global Markets Research for FTSE Russell.

The S&P 500 fell 0.3% to 3,320.79. It had fallen as much as 0.4% earlier in the day. The Dow Jones Industrial Average lost 0.5%, to 29,196.04. The Nasdaq composite slid 0.2%, to 9,370.81. Smaller-company stocks took the brunt of the selling. The Russell 2000 index lost 0.8%, to 1,685.90.

“Investors have shown a lot of optimism, and that might make some a little bit skittish," said Willie Delwiche, investment strategist at Baird.

“Valuations are elevated. In this sort of environment, I don't think it takes much of a headline to trigger a reaction," he added.