Chinese stocks just had their worst day in more than eight months as the coronavirus spreads

Stocks in China just had their worst day in more than eight months as a deadly virus spreads across the country, causing officials to partiallylock down Wuhan, the central Chinese city where it originated.

China’s Shanghai Composite (SHCOMP) closed down 2.75% Thursday afternoon. It’s the index’s worst single-day percentage drop since last May, when President Donald Trump threatened new tariffs on China.

Hong Kong’s Hang Seng Index (HSI) closed down 1.5%. The benchmark has lost about 4% so far this week.

Japan’s Nikkei 225 (N225) slumped 1%, while South Korea’s Kospi (KOSPI) decreased 0.9%.

China’s coronavirus problem is getting worse. The death toll from the disease has jumped to 17. More than 500 people have been infected, mostly in mainland China, though the disease has spread as far as the United States. The World Health Organization could decide Thursday whether the spread of the virus constitutes “a public health emergency of international concern.”

Asian markets crept up slightly Wednesday, even as the virus spread. But losses are now deepening: The outbreak coincides with the Lunar New Year, during which time millions of people are traveling throughout the region.

Medical supplier stocks have continued to surge, though: Shares of Zhende Medical and Jiangsu Nanfang Medical spiked 10% in Shanghai, the daily maximum limit.

A blow to the travel sector

China’s travel industry in particular is bracing for disruption. The country’s airline regulator has instructed Chinese carriers to offer passengers booked on Wuhan flights free cancellations if requested, while state media has cited China’s rail authorities as saying they are offering free cancellations to passengers booked on Wuhan trains.

Employees sit at the reception area of Ctrip.com International Ltd. at the company's headquarters in Shanghai, China, on Monday, Jan. 23, 2017.

Related article China's travel industry braces as coronavirus outbreak revives memories of SARS

The country’s aviation sector is “likely to remain under pressure,” Andrew Lee, an equity analyst at Jefferies, wrote in a note to clients on Tuesday. Shares of China Southern Airlines — which Lee estimated accounts for 30% of the flights in and out of Wuhan — dropped more than 3.5% in Hong Kong and Shanghai on Thursday.

Other major airlines, including Air China and China Eastern, also fell Thursday.

Meanwhile, Cathay Pacific (CPCAY) stock declined 2.1% in Hong Kong. Shares of the carrier, which serves as Hong Kong’s flagship airline, have already lost almost 12% this year, as ongoing protests fuel a drop in tourism.

The pain is expected to continue. “If the effect on regional travel is similar to that during the SARS outbreak in 2003, passenger volumes between Asian destinations — particularly China — and Australia could be significantly affected over the next [two to three] quarters,” analysts at Moody’s Investors Service said in a report Thursday.

Oil prices could also take a hit, since the anticipated decline in regional travel may bring down jet fuel prices, analysts at Goldman Sachs said in a note this week.

Looking back at SARS

Passengers wearing protective mask as they arrive at the Los Angeles International Airport on Wednesday.

The outbreak is reminiscent of SARS, the respiratory virus that infected more than 8,000 people and killed 774 in a pandemic that ripped through Asia and spread as far as Canada nearly two decades ago. The Wuhan virus is from the same family as SARS.

Larry Hu, an economist at Macquarie Capital, noted Wednesday that the SARS outbreak dented China’s quarterly GDP growth in 2003. Though he added that the economy rebounded as the virus faded away.

“We have come a long way from SARS in 2003,” said Jeffrey Halley, a senior market analyst for Asia Pacific at Oanda, wrote in a note to clients on Thursday. He said the slump in Asian markets “looks more precautionary than panic-driven.”

Markets in China will be closed for a week starting Friday, which marks the eve of the Lunar New Year.