Coronavirus: how are the markets responding?

Coronavirus: how are the markets responding?

 

Recent news stories about the coronavirus and attempts to contain its spread within mainline China have naturally raised concerns, both from a humanitarian stance and from

the perspective of the global financial markets. Many investors will remember the SARS outbreak in 2003, which did have a material but relatively short-term economic and market impact. Perspective is what’s needed, with many institutions pointing to the suggestion that an outbreaks’ effect on market confidence can have a significantly greater impact than its actual physical impact. If we are to momentarily put aside the heartbreak experienced by relatives and friends with the contagion, this cold outlook is supported by the impacts of Influenza. Globally, it kills an average of 646,000 people annually (56,000 of those being in the US alone) but has yet to alter market confidence with its yearly outbreaks in the same way.

Photo by miguel ugalde from FreeImages

The reality is that the Chinese health care services have improved dramatically over the past 17 years, so it is reasonable to argue that any viral outbreak is likely to be contained more effectively, especially given the Chinese government’s quick response that will only help to eventually normalise economic activity.   The 6 months that it took to contain SARS is likely to be dramatically less for coronavirus.

 

Over the last two days alone we have seen the Asian markets rally following China’s decision to cut in half tariffs on US imports by $75 billion. Coronavirus fears with regards to the markets seem to be assuaged, as European stocks also surge, the Stoxx 600 index (tracking some of Europe’s biggest companies) rising by 3.5% and on track for its best weekly performance in 4 years .

Whilst the markets are back to good health, efforts are being maintained by global nations to quarantine widespread outbreak from mainland China via all international routes of travel.

Despite short term effects on the Chinese travel, tourism and leisure industries, as the situation stabilises many commentators suggest that we are likely to see a significant improvement in GDP growth given that the signing of the US-China Phase 1 trade deal should spur an improvement in consumer and business confidence — and spending!

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