HONG KONG: Shares of airlines and tourist services operators tumbled like dominoes yesterday as fears of the spread of a deadly swine flu gripped global markets, including Hong Kong's.

Worries that a potential pandemic will derail possible recovery of an ailing global economy hit equity markets across Asia and Europe.

The MSCI world equity index was down 0.5 percent late last night amid reports that the flu has spread from Mexico to the US, Canada and Europe.

Airline counters led the downturn of markets across the world on fears that the swine flu, which has so far killed 103 people in Mexico, could undermine global trade and travel.

Reports that the flu is being transmitted from human to human have put airlines at the center of shares selldowns.

Analysts said global markets will take more beatings near-term amid uncertainties on how the spread of the flu can be stopped.

In Hong Kong, DBS Vickers Securities director Peter Lai warned that worse things have yet to come.

"This is just a beginning; things might get worse as many negative factors are not known yet," he said. "Airline stocks worldwide have been hardest hit."

Other analysts said Hong Kong people might take news of the swine flu more negatively than investors in other jurisdictions after this city's battle with the Severe Acute Respiratory Syndrome (SARS) in 2003. This negative sentiment might prolong the ongoing correction in Hong Kong's stock market, they said.

Cathay Pacific Airways, Hong Kong's largest airline, fell 8 percent to HK$8.42. The stock lost nearly 30 percent between mid-February and late April in 2003 during the SARS outbreak.

The mainland's flagship carrier Air China dropped 12.75 percent to HK$3.49, while China Southern Airlines slid 14.54 percent to HK$1.88.

Shangri-la Asia, the largest operator of luxury hotels in the region, fell 8.7 percent to HK$10.70.

"Hong Kong's economy is completely exposed to international trade and tourism, so people are a little more fearful of the flu news here," said Andrew To, sales director at Taifook Securities. "But the reaction hasn't been completely over the top; investors are watching to see how the disease spreads and what steps are being taken to contain it."

Aside from airlines and tourism services operators, producers of hog products also took a beating from the swine flu pandemic fears.

China Yurun Food Group Ltd, the mainland's biggest hog processor, sank 10.18 percent to HK$9.

Finding the support level for the stock is difficult as this will depend on further newsflow on whether or not the spread of swine flu will be stopped anytime soon, analysts said.

Conglomerate China Resources Enterprises, which has a pork producing unit, fell 2.5 percent to HK$13.3.

"The outbreak of this flu and its spread to the US and other parts of the world have given investors an excuse to extend the correction in our market which began last week," said Linus Yip, strategist with First Shanghai Securities.

He believes the impact of the swine flu outbreak on the general market will be fairly limited and will likely be confined to airlines and select counters if its spread is confined largely to Mexico and the US.

DBS Vickers' Lai said fears of a pandemic can serve as a blessing in disguise to pharmaceutical firms.

(HK Edition 04/28/2009 page16)