Chinese blue-chip stocks shed 1% in early trade on Tuesday after the country confirmed the first person-to-person spread of a new virus, which has killed four people so far.
The benchmark Shanghai Composite Index fell as much as 0.9% while the Hong Kong market dropped 1.9% to the lowest since Jan. 8.
Drugmakers surged while shares of airlines, cinema and casino operators slumped.
"It is all about the fear. The selling originated in travel-related stocks and is now spreading out," said Alex Wong, managing director at Ample Finance in Hong Kong.
"The ultimate fear is that this may spread with the tremendous human flow during the holiday," he added.
The yuan was 0.3% weaker onshore and close to 0.4% softer offshore.
A new coronavirus has spread from the central city of Wuhan to cities including Beijing and Shanghai, with more than 200 cases reported so far. Four cases have been reported outside China - in South Korea, Thailand and Japan.
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