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

Why investment forecasting is futile
Investment gurus

Why investment forecasting is futile

Every year events prove that forecasting is futile and 2020 was no exception, says Bill Miller, chairman and chief investment officer of Miller Value …
21 Jan 2021
Forget austerity – governments and central banks have no intention of cutting back
Global Economy

Forget austerity – governments and central banks have no intention of cutting back

Once the pandemic is over will we return to an era of austerity to pay for all the stimulus? Not likely, says John Stepek. The money will continue to …
15 Jan 2021
Why investors should beware of India’s surging stockmarket
Emerging markets

Why investors should beware of India’s surging stockmarket

The BSE Sensex benchmark index has soared by 90% since March, largely driven by foreign investors. But India's bull market is very vulnerable.
15 Jan 2021
US stocks are obviously in a bubble. But is it a rational bubble?
US stockmarkets

US stocks are obviously in a bubble. But is it a rational bubble?

Everyone wants to know if the US stockmarket is in a bubble. But that is the wrong question, says Merryn Somerset Webb. Of course it’s a bubble. The r…
14 Jan 2021

Most Popular

A simple way to profit from the next big trend change in the markets
Investment strategy

A simple way to profit from the next big trend change in the markets

Change is coming to the markets as the tech-stock bull market of the 2010s is replaced by a new cycle of rising commodity prices. John Stepek explains…
14 Jan 2021
Forget austerity – governments and central banks have no intention of cutting back
Global Economy

Forget austerity – governments and central banks have no intention of cutting back

Once the pandemic is over will we return to an era of austerity to pay for all the stimulus? Not likely, says John Stepek. The money will continue to …
15 Jan 2021
Here’s why markets have shrugged off the US political turmoil
Investment strategy

Here’s why markets have shrugged off the US political turmoil

Despite all the current political shenanigans in the US, markets couldn’t seem to care less. John Stepek explains why, and what it means for your mone…
7 Jan 2021
Free 6 issue trial then continue to