Dubai: Global markets will further rise this holiday-shortened week, with virus-driven fears seen alleviating on evidence that the contagion may be slowing.
The contagious coronavirus is seen as the dominant driver of markets in the weeks ahead, but even if there is volatility analysts believe the market will stay resilient and has momentum to go higher for now.
“Markets are getting used to coronavirus issue,” said Terrence Wu, assistant VP of FX research and strategy at OCBC Bank. “Shifts in risk sentiment are gaining very little traction despite the ongoing coronavirus crisis in China.”
Despite continued increases in coronavirus cases in China, stocks worldwide have been securing back-to-back weekly gains.
The Dow Jones index rose 1 per cent, the S&P 500 added 1.6 per cent, the Nasdaq rallied 2.2 per cent and the Stoxx Europe 600 up 1.5 per cent last week. MSCI’s broadest index of Asia-Pacific shares outside Japan, led by gains in Hong Kong and South Korea, was up 1.94 per cent on the week.
Drop in new cases
As of the latest data, the death toll from the pathogen has reached 1,666 according to Chinese authorities, with the total number of infected cases now flirting with the 70,000 mark. Hubei province registered 1,843 new cases, down from 2,420 a day earlier.
Markets should be encouraged by the news that Hubei province, the epicentre of the outbreak, has just reported fewer new infections for a second straight day, said Simon Ballard, chief economist at Market Insights at First Abu Dhabi Bank.
“While the global macro ramifications of the outbreak remain a key concern to risk markets, focus remains firmly on any evidence that the spread and pace of infection may be slowing,” Ballard added. “There is a long way to go, but this seems to be a step in the right direction.”
Economic, business impact
With Walmart, ViacomCBS and Deere are among companies reporting earnings in the week ahead on Wall Street, analysts expect to see more companies detailing the impact of the virus on their operations or supply chains even as a busy earnings period comes to an end.
The economic impact of the coronavirus outbreak in unknown. Some analysts have estimated that China’s yearly gross domestic product growth could fall to between 4 per cent and 5 per cent, down from the 6 per cent annual growth the Chinese government previously estimated.
But some investors expect the shortfall in growth to be largely contained to the first quarter, which would give China’s economy room to catch up later this year.
“It’s a relatively short-term factor,” said Jim Besaw, chief investment officer at GenTrust. “We probably won’t be talking about it in April and May.”
More market bullishness
From a technical perspective, markets have remained bullish for what analysts’ call ‘the longest on record’. (Simply put, ‘bullish’ means that an investor believes that a stock or the overall market will go higher, and ‘bearish’ means that an investor believes a stock will go down, or underperform.)
“The ongoing bullish cycle on global risk assets will continue as long as it powered by the right energy, which essentially comes from two sources which are global growth on the one hand and global monetary accommodation on the other,” said Stephane Barbier de la Serre of Makor Capital.
“Quite crucially, both sources are currently vital at this juncture,” Barbier de la Serre added. “Contrary to an increasingly widespread belief, the key vector for risk assets at this stage will increasingly be global GDP projections as opposed to action from central banks – however generous or creative.”