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Investors worldwide have been spooked by the rapid spread of the Chinese coronavirus, with stock markets around the globe sharply lower on Monday.
The death toll rose to 80 as of the end of Sunday, according to Chinese officials, with more than 2,700 people now infected. A fifth case in the U.S. has now been confirmed and the virus has been detected in Singapore, South Korea, Australia, Canada, France, Japan, Malaysia and Vietnam.
While most markets in Asia were closed for the Lunar New Year, Japan’s Nikkei 225 fell by more than 2% in afternoon trade while the Topix slipped 1.6%.
The flight from risk comes amid concerns about a possible economic fallout from the virus, with experts recalling the impact of the SARS crisis in 2003. At a press conference on Sunday, China’s top health official said the virus’s transmission ability is strengthening.
In a note Monday morning, Danske Bank Chief Analyst Allen von Mehren said that the Chinese economy is likely to take a short-term hit and a possible GDP (gross domestic product) reduction of one percentage point in the first half of 2020.
The SARS epidemic lasted three to four months but it is hard to say if this is any guide. While the government response is faster, the new virus seems to be spreading faster. It is too early to judge when it will get under control, von Mehren said
Traditional so-called safe haven assets surged on Monday. Spot gold was trading up by 0.78% at just below $1,582.6 a troy ounce early in the European session, while the Japanese yenchanged hands at 109 against the dollar. The Swiss franc was also among the strongest-performing currencies.
Government debt prices also surged, sending bond yields tumbling. The yield on the benchmark U.S. 10-year Treasurynote fell to 1.6218% to hit its lowest since October, while the 30-year Treasury bond yield slid to 2.0825%.
Danske Bank analysts projected that the Chinese service sector is likely to take the main hit this time around, and is much bigger than it was during the SARS epidemic, now standing at 54% of GDP versus 42% in 2003.
From a global perspective, China now accounts for 19% of the global economy in purchasing power parity (PPP) adjusted terms versus 9% in 2003.
A mitigating factor could be that the import content of the service sector is much smaller than in manufacturing, but the uncertainty is likely to cause some global economic spillover, von Mehren suggested.
Hence, there is a clear risk that the expected recovery in growth and PMIs (Purchasing Managers’ Index) could be somewhat delayed or at least be more muted. As in China, the effect should be temporary, though, he added.
We are in uncharted waters as a virus of this kind has not taken place in the more modern economy that China is today, with much wider transport networks and being more integrated with the global economy.
With every pull back there is money to be made, you can go short on the stocks that will get hurt during the time of the virus. And the stocks will be on ‘sale’, which means new buying opportunities. People also often seek security in gold and silver in uncertain times, what will increase the price.
Keep an eye on our Category Trading, Gold and Silver and Emerging Markets to profit on Coronavirus Fears.
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