Risk Aversion Triggered by New, But Familiar Disease
Today, investors finally took notice of the coronavirus outbreak which started in China. This followed after the World Health Organization (WHO) reported that the disease was spreading. The agency concerned with international public health called for an emergency meeting to address the containment of the virus. This was at the wake of reports that the virus quickly spread to 200 people from initially being recorded at 136 during the weekend. It has also been confirmed in four countries: China, Japan, Bangkok, and Australia. The coronavirus is also said to be responsible for four deaths already. With the Chinese New Year happening this weekend, people are expected to travel more and the disease could spread even more.
In response, stock markets all over the world are trading lower today. The biggest loser is the Hang Seng Index being down by 2.81%. The Shanghai Composite is the second-biggest loser at -1.41%, followed by the Nikkei 225 which was in the red by 0.91%. Meanwhile, the FTSE 100 and DAX Index are both trading lower at -0.80% and -0.49%.
SARS Outbreak All Over Again?
While there is still much to learn about the infection, what we do know is that it shares significant similarities with SARS (Severe Acute Respiratory Syndrome). The new coronavirus can cause a runny nose, headache, cough, and fever. More extreme cases result in pneumonia, kidney failure, and death. It has now been confirmed that this new virus can be passed on human-to-human, exacerbating the public’s concern.
How Can It Affect Financial Markets?
As fears of the disease mount, people are going to avoid public areas. In 2013, airlines, supermarkets, restaurants, and shopping malls were hard-hit.
We’re seeing the same pattern now. Shanghai International Airport is down 2.2% for the day. Meanwhile, airline companies Air China and China Eastern are in the red by 3.2% and 3%, respectively. Wharf Real Estate Investment, which manages malls in Hong Kong, lost over 4%. Luxury brands like Burberry and Louis Vuitton also fell more than 3% as sales in China waned.
Back in 2003, the Hang Seng Index lost 3.85% when WHO issued a global alert against SARS, while the Nikkei 225 bottomed at -5.96%. Asian stock markets fell even lower on April 28, 2003 when an emergency meeting called between ASEAN countries and China to contain the disease caused panic.
However, as you can see the stock indices quickly rebounded. By the time WHO announced that the world should soon be SARS-free, the Nikkei 225, Hang Seng Index, and Shanghai Composite Index were trading at their pre-outbreak levels or even higher.
If initial reports saying that the new coronavirus is not as deadly as SARS, we could soon see investor sentiment improve. Reports from WHO will be critical in the next few days. News of the disease being contained may be enough for risk appetite to return and dictate market sentiment.