Issue of the week: corona contagion
Could the rapid spread of China’s deadly virus derail stock markets around the world?
Charles Li, chairman of the Hong Kong stock exchange, performed a traditional duty on Wednesday – handing out cashstuffed red envelopes to celebrate the first trading day of the Year of the Rat. It was hardly the most auspicious of starts, said Louis Ashworth in The Daily Telegraph. “Almost half a trillion pounds was wiped off global stocks” this week as China’s deadly coronavirus rattled markets. Some traders fear the epidemic may have a major effect on global equity markets, “many of which ended last week at alltime highs”. Shares in mainland China remained “isolated from the fall-out”: the country’s stock markets were closed during the new year holiday and will probably remain “in stasis” until next week, according to Bloomberg. But Hong Kong’s benchmark Hang Seng index, which tracks the performance of large Chinese companies, fell by 3.5% on Wednesday.
The main worry for investors, said DealBook in The New York Times, is that this outbreak “could undo months of economic gains around the world”. The biggest stock market hits were taken by miners, luxury groups and airlines, including IAG, owner of British Airways, which has suspended flights to China. Among big US losers were Starbucks, which closed more than half its stores in China, its second biggest market, and Apple, which said “the outbreak could affect its financial forecasts”. Plenty more global companies are already “exposed”, with carmakers, auto-part suppliers and luxury goods groups “among the most vulnerable”, said the Financial Times. Wuhan, the city at the centre of the outbreak, “is a major automotive hub”: Nissan, PSA, Honda and GM all have plants there. Japanese carmaker Toyota has already postponed the reopening of 12 Chinese plants until well into February.
Will the virus derail the bull market in stocks? History suggests not, said Dominic Frisby on MoneyWeek.com. The most easily comparable epidemic – the Sars outbreak of 2003 – had little long-term impact on global markets. “Unless this coronavirus morphs into something much bigger ... I don’t see it having a big effect on Western markets, beyond causing some choppy action in the days – and maybe weeks – ahead.” Economists at Goldman Sachs say “the negative impact on growth and asset prices from viral outbreaks typically fades within a few months”, said Peter Wells in the FT. “But any hit to the economy is unlikely to be well received by investors at a time when they are positioned for growth to accelerate.” In the run-up to this epidemic, markets have been preternaturally serene. “Anything really piercing the calm could prove a rude shock.”