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China’s Virus Outbreak: Will it Shake the Stock Market?

Economists say that the virus is one of the worst-case scenarios for an economy trying to rebalance itself.
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China’s newest outbreak of a novel coronavirus strain was first announced on December 31, 2019. The virulent 2019-nCoV has since then infected over 2000 people in China and 12 other countries around the world.

The virus could not have come at a worse time for the Chinese economy and especially for stock traders and the stock market as a whole.

So, if you’re planning to trade stocks during this period, take care of sound risk management measures. The East Asian economic giant has been in an economic slump because of its trade war with the US and this outbreak has exacerbated the situation.

The virus has particularly thrown into disarray the Chinese capital markets, forcing government intervention. Also, the virus has affected traveling and celebration plans for the Chinese Lunar New Year holiday.

A New York Times report states that there have been over 56 reported deaths as of January 26, with 688 new infections confirmed on January 25. The Chinese government’s quick response to the disease has been lauded internationally, showing vast improvements in response to the 2003 SARS virus outbreak.

Wuhan Has been Quarantined

The city Wuhan believed to be ground zero is under quarantine and all its public transportation routes and access, including trains and flights, have been grounded. The quarantine measures have affected 12 other cities that neighbor Wuhan, effectively stifling the travel plans of 35 million Chinese citizens.

Chinese president Xi Jinping has also asked his government to suspend both overseas and internal tours for Chinese citizens calling the virus a “grave” threat.

This holiday season spawns humanity’s most massive annual migration as Asians around the globe travel home to spend time with their families. Their economy would have significantly enjoyed the increased spending that the season brings. The expenditure might have staved off a more significant downturn in the economy.

What are the effects of 2019-nCoV on the stock markets?

Economists say that the virus is one of the worst-case scenarios for an economy trying to rebalance itself. The markets are visibly shaken by the Wuhan virus, which has severely affected the country’s growing travel industry.

Consequently, Asian shares and oil prices have fallen while haven assets such as the US treasury notes, Japanese yen, and gold witness a demand. The US Treasury bond prices, for instance, rose on Friday, pushing lower their yields while the yen strengthened by 0.49% to 108.73 Yen per USD.

The travel difficulties have forced the price of Brent crude below the $60 per barrel cost, the lowest the commodity has been since October 2019.

Spreading to the US

The event has not only negatively affected Asian stocks but their Wall Street counterparts as well. As an illustration, all Wall Street’s most significant indexes were lower on Friday as Center for Disease Control and Prevention announced the US’s second case of the virus.

Investors feeding on the latest virus-laden headlines are now selling the markets.

Axitrader’s Stephen Innes, the business’s market strategist for Asia, warns:

“Any economic shock to China’s colossal industrial and consumption engines will spread rapidly to other countries through the increased trade and financial linkages associated with globalization.”

The shares of China’s major airlines, China Southern, Air China, and China Eastern have all fallen and still are under increased pressure as more cases of the virus crop up.

Some large Chinese businesses have also urged their employees to stay away from their workplaces and work from home, shutting down their stores. Others are canceling business events and offering longer holidays as managers brace for long-time economic damage from the virus fall out.

Will the Wuhan virus affect the economy as SARS did?

The 2003 SARS outbreak that infected over 8000 people, claiming 774 lives, got the global markets into a panic that led to massive losses for American stocks.

As it is with the Wuhan virus, tourists, airlines, and hotel industries were the most affected sectors by the outbreak of SARS, whose spread was curbed in 2003. Nevertheless, the virus left a gaping global revenue hole of over $40 billion.

At the height of the epidemic, the US stock market underwent a correction, and analysts believe that the same fate awaits the stock markets this year, should the epidemic spread further.

While Asian markets are paying a higher price for the Wuhan virus than US stocks, an intensifying of the outbreak could be deadly for US shares. China is now more profoundly connected to the world than it was in 2003.

Moreover, the number of Chinese travelers increased by five to ten times since 2003, so the effect of a spreading virus would be higher.

SARS took off five percentage points from the Chinese economy, but it bounced back fast. Once the 2019-nCoV is under control, the markets will once more bounce back, too.

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Oliver Dale is Editor-in-Chief of MoneyCheck and founder of Kooc Media Ltd, A UK-Based Online Publishing company. A Technology Entrepreneur with over 15 years of professional experience in Investing and UK Business.His writing has been quoted by Nasdaq, Dow Jones, Investopedia, The New Yorker, Forbes, Techcrunch & More.He built Money Check to bring the highest level of education about personal finance to the general public with clear and unbiased reporting.oliver@moneycheck.com


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