The Major Markets languished near all-time highs last week as coronavirus news took hold of the markets. Not surprisingly, the greatest losses were seen in Emerging Markets. The MSCI Emerging Market Index has a 34% exposure to China as of December 31st. As a result, the troubling headlines from this country weighed heavily on the markets.
Over the weekend, the reported death toll due to the coronavirus surpassed 100 and at least 4,200 have been infected globally. On Friday, China quarantined 12 cities with a total population of 35 million people. To put this in perspective, the Chinese population under quarantine would be comparable to the total population of the state of California.
This outbreak could not come at a worse time for the region. Normally, China would be on holiday to celebrate the lunar new year with the Shanghai Stock Exchange scheduled to be closed from January 24th to January 30th. However, major attractions like the various China Disneylands and the country’s movie theatres are closed to limit the spread of the virus among the population. Nevertheless, it is estimated that 5 million people had already left the city of Wuhan alone, the source of the outbreak, before the quarantine went into effect.
While it is still far too soon to know what the economic impact of this event will be, S&P Global calculated that even a 10% drop in consumer spending could cause the overall Chinese GDP to fall by about 1.2 percentage points. Estimates are further complicated by Wuhan’s importance as an industrial and transportation hub.
Back stateside, only three sectors managed to remain in positive territory for the week. The greatest losses were seen in Energy as oil prices continue to fall and reached a three-month low. Investors remain concerned about oil demand as it may continue to slow due to the impact of the coronavirus. Saudia Arabia’s Energy Minister said that markets are “primarily driven by psychological factors and extremely negative expectations adopted by some market participants despite (the virus’) very limited impact on global oil demand,”.
In the midst of this turmoil, investors flocked to the safe haven of Treasuries. The 10-year yield fell 14-basis points to close at 1.7% on Friday. As we go into this week, investors will continue to be focused on the emerging situation in China as well as domestic earnings as earnings season begins to ramp up.
Post, S. (2020). Wuhan Virus. [online] Multimedia.scmp.com. Available at: https://multimedia.scmp.com/widgets/china/wuhanvirus/ [Accessed 28 Jan. 2020].
Spglobal.com. (2020). Coronavirus in China: Early Thoughts on the Economic Impact. [online] Available at: https://www.spglobal.com/en/research-insights/articles/coronavirus-in-china-early-thoughts-on-the-economic-impact [Accessed 28 Jan. 2020].
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