Market Outlook: The Latest Coronavirus

A new coronavirus originating in Wuhan, China, has killed 107 people and infected 4,409 in Mainland China (as at 28 January), with 65 infections confirmed globally (excluding Mainland China).
 
To contain it, 20 Chinese cities have travel restrictions in place, with China banning wildlife trade and extending the Lunar New Year holiday to prevent accelerated transmission.
 
According to the WHO, coronaviruses are a group of viruses that cause illnesses ranging from a common cold to severe respiratory diseases, such as Severe Acute Respiratory Syndrome (SARS).
 
This new coronavirus is called novel coronavirus of 2019 (Wuhan Flu). The WHO says that, while the virus is an emergency in China, it was too early to declare it a health emergency of international concern.
 
Historically, the impact of disease-related events on markets have been temporary – a small, short-term impact with travel-related stocks, retail sales (especially luxury goods companies) and restaurants hardest hit.
 
The Wuhan Flu is being compared with 2003’s SARS outbreak, which also occurred around the Chinese New Year and was stopped by July 2003. At that time, Chinese and other Asian markets declined as SARS spread, bouncing back once SARS was contained.
 
The likelihood, from past experience, is that markets could react sharply, albeit temporary, to news about the virus in China and other markets, until it stops spreading. Asian markets will likely bear the brunt of the impact.
 
Fortunately, so far, the Wuhan virus seems to be smaller than SARS in severity, with the mortality rate at c. 3% and China being far more aggressive in containing the virus.
 
Globally, its impact has been minimal with tourism and consumer spending likely the most significantly hit segments in the affected regions. The impact on US markets will likely be greater if the virus proves more deadly than is currently believed to be the case, or if it infects large numbers of people both inside and outside of China.
 
If the virus halts travel (which has already occurred to a degree) and impacts Chinese consumption, it could have larger economic implications on the US and other major global markets.

Written exclusively for Moore South Africa by Anchor Capital