In China, the Shanghai Composite Index fell 0.7 per cent to 2,906, ending a seven-session winning streak. Before Thursday, it last fell on February 3, when mainland markets reopened after the Lunar New Year holiday.

The CSI 300 of large-cap stocks on the Shanghai and Shenzhen exchanges closed 0.6 per cent lower at 3959.92.

“[The Hang Seng Index] was driven by profit taking as investors believe further upside may be relatively limited,” said Kenny Wen, wealth management strategist at Everbright Sun Hung Kai. “For Shanghai, it’s the same story, especially after a seven-day winning streak.”

The fall in mainland and Hong Kong stock markets reflected the spike in confirmed cases of the novel coronavirus in Hubei, said Willer Chen, equity research analyst at Forsyth Barr, a New Zealand-headquartered financial service company.

Stock markets should peak at this stage, Chen said, as there has been a mismatch between market sentiment and the impact of the deadly virus that has claimed more than 1,300 lives.

“China aims to reach the goal for becoming a comprehensively well-off society this year, so people are expecting more policy stimulus coming,” Chen said.

Beijing ordered local authorities to kick-start economic activities and resume production while containing the spread of the coronavirus.

Hubei province reported 14,840 new confirmed cases, following a change in diagnostics methods. Local governments were urged to offer temporary support to small enterprises, while banks were advised to keep interest rates low, state media Xinhua reported.

Alan Li, portfolio manager at Atta Capital, says the expectation of stimulus measures by Beijing is driving sentiment more than fears of the virus.

“People aren't worrying about the coronavirus impact to capital market, as they believe China government will ease monetary policy to counter the economic slump,” Li said.

A gauge tracking medical waste treatment stocks in mainland markets jumped 5.5 per cent on demand from hospitals and health care sectors due as outbreak containment efforts increased.

Qiaoyin Environmental Tech rose nearly 10 per cent – the daily limit – to 22.7 yuan. JS Rainbow Heavy Industries also gained close to 10 per cent at 5.7 yuan.

Some continue to see buying opportunities.

Aviation and online health care sector stocks could bounce back, according to Daiwa Capital Markets.

“We expect the aircraft movement at Shanghai International Airport (SHA) to drop significantly in 1Q20, followed by a rebound in 2Q20 on international routes,” Daiwa said, noting travel restrictions imposed on Chinese citizens by other countries amid the coronavirus would weigh on the stock.

It reiterated its “buy” rating on Shanghai International Airport, while lowering its target price to 85 yuan from 95 yuan.

“Among our covered airport universe, we believe SHA is the best player to benefit from the likely passenger traffic recovery from 2Q20E given its highest exposure to non-aeronautical revenue,” Daiwa added. “Especially on profit-sharing of duty-free sales.”

It also likes Hong Kong-listed Ping An Good Doctor due to better monetisation in the online medical service segment and rising blended margin. The company’s daily new registered users jumped 10 times and frequent online consultations rose nine times among new users since 22 January compared with the first 21 days in January, it said in a fresh note.

Ping An Good Doctor rose 5.6 per cent to HK$76.35 on Thursday, after two straight days of losses.

“Ping An Good Doctor could be the company which benefits the most from the novel coronavirus due to its business nature, including online consulting and online mall,” said Forsyth Barr’s Chen.

On the mainland, Apple AirPod supplier Luxshare Precision Industry declined 2.2 per cent to 44.1 yuan and liquor distiller Kweichow Moutai dropped by 0.6 per cent to 1091.0 yuan.

Investors should expect sentiment in Hong Kong to be driven in the near future by corporate annual results, said Louis Tse Ming-kwong, managing director at VC Asset Management.

“The Hong Kong market has been bought between two extremes – from 26,500 points to touching over 27,900. This led to quite a gain and profit taking [since the coronavirus broke out],” Tse said. “But now investors have to watch out and anticipate the annual reporting of companies.”

Tse advised investors to closely watch the price-to-earnings ratio of stocks that have gained strongly in the hi-tech, health care and pharmaceutical sectors.

China’s biggest chip maker SMIC rose 6.2 per cent to HK$17.22 at the close. Its four-quarter results are coming this week. E-commerce giant Alibaba closed 1 per cent higher to HK$217.2 ahead of its earnings release tonight in the US.