Coronavirus fear goes viral in the markets

The coronavirus outbreak is bringing back memories of the 2003 Sars epidemic, which cost the world economy $40bn.

“From one food market to global panic”, say Emma Graham-Harrison and Michael Standaert in The Observer. The coronavirus, 2019-nCoV, which is thought to have originated in a seafood market in the Chinese city of Wuhan, has prompted a public health emergency in the world’s second-biggest economy. There are 50 million people in quarantined lockdown.

Unhappy New Year

News that Hong Kong will suspend cross-border trains and ferries has compounded the market panic. America’s S&P 500 fell by 1.6% on Monday, its biggest one-day drop since October, say Matt Phillips and Katie Robertson in The New York Times. The pan-European Stoxx Europe 600 index fell by 2.3%, with travel companies particularly hard hit. The Hang Seng fell by almost 3% on Wednesday, its first day of trading after the New Year holiday. Mainland China’s markets are closed until next week but a 3.1% plunge in Seoul’s Kospi index early this week suggests that they are due a battering. 

The new virus is bringing back memories of the 2003 Sars epidemic, says Nathaniel Taplin in The Wall Street Journal. That saw year-on-year retail sales growth plunge by 50% in China and cost the world economy $40bn. This time around things could be even worse. China’s infrastructure is far better than it was in 2003 – helping the new strain spread more quickly. In the early 2000s consumer spending accounted for 40%-50% of Chinese growth, today that figure is 60%. The greater importance of the service sector, which is acutely vulnerable to downturns in tourism and consumption,  bodes ill. “There is no longer any doubt” that the epidemic will hit Chinese GDP growth in the first quarter, says Edward Glossop for Capital Economics. The question is how far the damage will spread. The likes of Hong Kong and Thailand will see a drop in Chinese tourist receipts. However, the stability of emerging market currencies so far suggests that the fallout beyond Asia may be limited. 

A familiar pattern

These market jitters have followed a well-worn pattern, says John Authers on Bloomberg. As with previous disease scares, there is “sell-off” and a “crescendo” of worry until “the outbreak comes under control”. Historically, this has then been followed by a nice recovery in stocks. Yet the latest losses may be about more than the virus. The scary headlines are catalysing broader concern that markets got carried away last year and global growth will disappoint in 2020. My advice? “Don’t panic”, but “that’s a long way from saying ‘don’t worry’” at all. 

“Paranoia is a natural reaction” to disease epidemics, writes Jim Armitage in the Evening Standard. Yet “the true impact of such outbreaks” is rarely as bad as feared. In 2003 the Chinese stockmarket bounced back just six months after the Sars epidemic. Authorities learnt lessons from that episode and have reacted more quickly and transparently to contain the new coronavirus. “Investors shouldn’t turn a scare into a panic.”

Recommended

Money Minute Wednesday 4 December: Britain's economic sentiment and American job figures
Economy

Money Minute Wednesday 4 December: Britain's economic sentiment and American job figures

Today's Money Minute looks ahead to the UK's latest all-sector PMI survey, and America's private payrolls report.
4 Dec 2019
The British equity market is shrinking
Stockmarkets

The British equity market is shrinking

British startups are abandoning public stockmarkets and turning to deep-pocketed Silicon Valley venture capitalists for their investment needs.
8 Nov 2019
Jim Reid: an ”age of disorder” is looming
Global Economy

Jim Reid: an ”age of disorder” is looming

The world is headed for a new “age of disorder”, says Jim Reid, the veteran multi-asset strategist at Deutsche Bank, in the latest edition of his annu…
21 Sep 2020
Chipmaker Arm gets a helping hand from Nvidia
Tech stocks

Chipmaker Arm gets a helping hand from Nvidia

Arm, the British chip designer, is to be sold to a US peer in a record deal for the industry. The consequences will be far-reaching.
21 Sep 2020

Most Popular

Will a second wave of Covid lead to another stockmarket crash?
Stockmarkets

Will a second wave of Covid lead to another stockmarket crash?

Can we expect to see another lockdown like in March, and what will that mean for your money? John Stepek explains.
18 Sep 2020
Here’s why you really should own at least some bitcoin
Bitcoin

Here’s why you really should own at least some bitcoin

While bitcoin is having a quiet year – at least in relative terms – its potential to become the default cash system for the internet is undiminished, …
16 Sep 2020
IAG's share price is ready for take-off - here's how to play it
Trading

IAG's share price is ready for take-off - here's how to play it

The owner of British Airways has had a turbulent year, but is now worth a punt. Matthew Partridge explains the best way to play it.
8 Sep 2020