Over the weekend, Treasurer Josh Frydenberg said the coronavirus, combined with the impact of the bushfires, could weigh heavily on the local economy and did not rule out a quarter of negative growth.
The local market’s decline was dwarfed by falls in China, as the Shanghai Composite plummeted 8.7 per cent at the open after resuming trading for the first time since January 23.
Shares on Wall Street were also hit heavily on Friday, with investors opting to take defensive approach to the viral breakout, with uncertainty over the potential economic impact of the virus rife across the globe.
Mining stocks took a hit on Monday too, as base and bulk metal prices dropped amid concern investment from China would slow.
“The Lunar New Year holiday extensions in China to combat the spread of coronavirus will weigh on commodity demand as the impacted regions account for 90 per cent of copper smelting, 60 per cent of steel output, 65 per cent of refined oil production and 40 per cent of coal mining,” said NAB head of commodity research Lachlan Shaw.
“Iron ore prices could continue to fall as Chinese restrictions on labour movement and logistics threaten to delay the seasonal restart of construction post Chinese New Year, threatening steel demand, at the same time as global iron ore supply is anticipated to lift.”
BHP Group led the market losses, sliding 2.9 per cent to $38.25, Fortescue Metals Group dipped 3.4 per cent to $11.00 and Rio Tinto dropped 1.9 per cent to $96.86.
Oil stocks also declined sharply, with reports from China suggesting the country’s demand for crude had fallen by as much as 20 per cent already.
Brent crude dipped 3.3 per cent to $US56.24 a barrel on Monday.
Woodside Petroleum fell 3 per cent to $33.70, Santos lost 5.1 per cent to $8.25, Worley slid 8.5 per cent to $13.95 and Beach Energy dropped 5.6 per cent to $2.52.
Oil Search shares slipped 7.2 per cent to $6.72 after negotiations with the Papua New Guinea government to develop a new gas field fell apart over the weekend.
The major banks were also weaker. Commonwealth Bank lost 0.8 per cent to $84.55, NAB declined 1.4 per cent to $25.50, Westpac dropped 1.2 per cent to $24.81 and ANZ closed 1.8 per cent lower at $25.29.
Macquarie Group dipped 2 per cent to $141.85.
The likelihood of further stimulus from the Reserve Bank of Australia in the near future appears in doubt, with markets pricing in just a 22 per cent chance of a cut when the board meets on Tuesday.
A cut in March is being given a 56 per cent likelihood while April’s meeting is priced at 74 per cent.
Gold miners dominated the handful of stocks trading higher on Monday as investors flocked to safe havens, pushing the price of Australian gold to a new record high.
Northern Star Resources advanced 2.5 per cent to $12.91, Evolution Mining firmed 3 per cent to $3.82 and Gold Road Resources rose 2.8 per cent to $1.46.
The scramble for safety also pushed Australia’s shorter maturity bonds to record lows. The two-year yield dipped 3 basis points to 0.63 per cent while the five-year bond also slid 3 basis points to 0.63.
Bond proxy real-estate investment trust and infrastructure stocks were supported by the fall in yields, with Transurban rising 0.4 per cent to $15.76, Goodman Group firming 0.3 per cent to $14.94 and APA Group climbing 0.9 per cent to $11.43.