There have been no confirmed cases of the virus in Hong Kong. But there have been 14 cases in neighboring Guangdong province, including one in nearby Shenzhen.
Shares of Hang Seng components were down across the board. Major property developers like Wharf Real Estate Investment Company and Hang Lung Properties were among the worst performers, having lost more than 4%. Chinese car maker Geely Auto was the worst performer down 5.3%.
Losses in other major Asian markets also accelerated Tuesday: China's Shanghai Composite (SHCOMP) slumped 1.4%, while South Korea's Kospi (KOSPI) and Japan's Nikkei 225 (N225) closed down 1% and 0.9%, respectively.
While the outbreak of the respiratory virus originated in Wuhan, the largest city in central China, market and economy analysts suggested that it could become a major economic risk for the region should it continue to spread.
Earlier this month, Chinese scientists identified the pathogen as a new strain of coronavirus, the same family as severe acute respiratory syndrome (SARS). SARS 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.
Since the SARS outbreak, China's international tourism has boomed, so the risks of a SARS-like virus epidemic spreading globally have become even more severe, Biswas said.
The "sea of red" in Asian markets on Tuesday highlights "if nothing else, that the global economy has precious spare capacity to absorb unexpected crises," wrote Jeffrey Halley, senior market analyst for Asia Pacific at Oanda, in a research note Tuesday.
Major airline stocks in the region also fell Tuesday. At least one Chinese state media outlet, the China Youth Daily, suggested that the nation's railway operators and airlines waive cancellation fees to help "contain the spread of the disease."
Air China, China Eastern Airlines and China Southern Airlines the country's three biggest airlines fell between 5.9% and 6.7% on Tuesday in Hong Kong, where they trade but are not components of the Hang Seng.
Many stocks in mainland China were also lower Tuesday. Theme park operator Jiangsu Tianmu Lake Tourism and travel service China International Travel Service Corp tumbled 6.1% and 3.6%, respectively, in Shanghai.
Pharmaceutical stocks surged, though: Jiangsu Lianhuan Pharmaceutical and Jiangsu Sihuan Bioengineering shot up 10% in Shenzhen, hitting their daily limit.