Tourism-linked stocks sank in Hong Kong on Tuesday with investors spooked by confirmation that a deadly virus in China can be transmitted between humans, while confidence was also hit by Moody's decision to downgrade the city's credit rating.

The Hang Seng Index has enjoyed a healthy run-up over the past six weeks, thanks to the China-US trade pact, signs of an improving global outlook and looser central bank monetary policies.

But the optimism has given way to fears about an outbreak of a virus that resembles SARS, a disease that killed hundreds in China and Hong Kong and hammered the local equities market.

The new coronavirus strain, which has spread from the mainland city of Wuhan, has infected more than 200 people. On Tuesday authorities said a fourth person had died from it.

A top scientist at China's National Health Commission said the strain has now been found to pass between humans, a major worry days before the Lunar New Year holiday, which sees hundreds of millions of people travel across the country.

"The timing is unfortunate as the great migration that is Chinese New Year starts in mainland China," said OANDA's Jeffrey Halley. "The accompanying possibility is that infectious cases could rise. Asia will remember back to the origins of SARS outbreak and its adverse effects on economic activity in the region."

And Stephen Innes, an analyst at AxiCorp, warned that "the cost to the global economy can be quite staggering in negative GDP terms if this outbreak reaches epidemic proportions, as until this week the market was underestimating the potential of the flu spreading".

He added: "If things turn critical, it could provide a massive blow to the airline industry and a knockout punch to local tourism."

Cathay Pacific
Shares in airlines including Cathay Pacific tumbled in Hong Kong, with the Hang Seng Index hit by worries about the SARS-like virus in China and Moody's downgrade of the city's credit rating Photo: AFP / Anthony WALLACE

Airlines were among the worst hit stocks. Cathay plunged more than four percent and Air China tumbled nearly six percent.

Casino operators, who rely on tourism, were also sharply lower. Wynn Macau shed 4.8 percent and Galaxy Entertainment was off 3.6 percent.

The Hang Seng Index sank 2.8 percent and was taking a hit across the board after Moody's said it had lowered its credit rating in a fresh blow to the financial hub, which likely fell into recession last year owing to months of demonstrations as well as the China-US trade war.

In a statement, the firm said: "The absence of tangible plans to address either the political or economic and social concerns of the Hong Kong population that have come to the fore in the past nine months may reflect weaker inherent institutional capacity than Moody's had previously assessed."

The move comes as the business community grows increasingly worried that the features that give Hong Kong more political and economic autonomy are weakening under pressure from Beijing.

The decision by Moody's came four months after a similar move by Fitch, which cited the demonstrations and uncertainty caused by closer integration with the Chinese mainland.

Among other firms to have been beaten down Tuesday, market heavyweight Tencent sank 2.7 percent, while property developers were well off with Henderson Land diving three percent and Swire properties 3.3 percent off.

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