The top indices on Wall street tanked on Monday, with the Dow losing over 500 points as more people died from the coronavirus over the weekend, fueling worries over the virus’ impact on the world economy.
The death toll rose to 81 as of the end of Sunday, according to Chinese officials, with more than 2,862 people now infected. A fifth case was confirmed in the United States and the virus has so far been detected in Singapore, South Korea, Australia, Canada, France, Japan, Malaysia and Vietnam, apart from China.
In the US, Dow plunged 521 points, or 1.8 per cent, S&P500 dropped 1.8 per cent and the Nasdaq shed 2.3 per cent. The pan-European Stoxx 600 fell 1.7 per cent when most markets in Asia were closed for the Lunar New Year. Japan’s Nikkei 225 fell by more than 2 per cent while Tokyo’s Topix slipped 1.6 per cent.
Analysts said risk aversion spiked after a top health official in China said in a press conference that the virus’s transmission ability is strengthening, fuelling concerns about a possible economic fallout from the virus and multiple experts recalling the impact of the SARS crisis in 2003.
Chinese authorities have put travel restrictions in place, and have extended the country’s new year holidays, with financial markets likely to remain closed for the time being.
“Aside from the human cost, the outbreak will likely weigh on Chinese real GDP growth this year, which was already expected to come in under 6 per cent for the first time in decades,” said Daniel Marc Richards, MENA Economist at Emirates NBD, adding that this will also weigh on the global growth outlook.
Hard to say
“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,” Danske Bank Chief Analyst Allen von Mehren wrote in a client note.
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, currently standing at 54 per cent of GDP versus 42 per cent 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.
However, former FDA Commissioner Scott Gottlieb sought to reassure investors by saying that although the coronavirus outbreak in China is likely more contagious, it is less severe than the SARS epidemic that rattled markets in 2003 and slowed global economic growth.
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.
“We probably will have some isolated outbreaks [of coronavirus in the US], but that doesn’t mean it’ll translate to an epidemic,” Gottlieb said earlier.
As expected, investors were seen moving their investments to so-called safe haven assets, which surged on Monday. Spot gold was up by 1 per cent at just below $1,584.8 an ounce, while the Japanese yen changed hands at 109 against the dollar. The Swiss franc was also among the strongest-performing currencies.