• Thursday, March 28, 2024
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BusinessDay

Coronavirus fears rattle shares and oil market

Coronavirus

Global equity markets fell heavily and oil prices slumped after China warned the spread of the deadly coronavirus would accelerate, highlighting growing concern about the disease’s potential impact on the global economy.

Investors and China’s leaders are braced for a blow to first-quarter domestic growth as the virus weighs on consumer spending and travel during the lunar new year holiday and threatens to hit manufacturing.

Beijing confirmed on Monday that 80 people had died while 2,744 were infected. The mayor of Wuhan has said the number of coronavirus cases in the city could rise by another 1,000. The escalating public health crisis prompted the government to extend the lunar new year holiday until next week in an effort to contain the outbreak.

Lee Hardman, a currency analyst at Japanese bank MUFG, said the virus marked “a setback for the global economy and manufacturing sector, which had been showing tentative signs of improvement in recent months”.

The virus continues to spread around the world. The US has confirmed cases in Washington state, Chicago, California and Arizona while Australia has reported five cases, South Korea four and Hong Kong five. Taiwan, Thailand, Vietnam, Singapore, Malaysia, Nepal and Canada have also announced cases.

Major bourses across Europe posted broad declines with the composite Stoxx 600 index falling 1.8 per cent and shares in the travel, luxury goods and mining sectors tumbled. London’s FTSE 100 slid 2.2 per cent, while Germany’s Dax was 2.1 per cent lower. US shares were set to open sharply lower on Wall Street, with S&P 500 futures indicating a fall of around 1.3 per cent.

International banks, which have been expanding aggressively into China in recent years, have been keeping potentially exposed employees at a distance. Credit Suisse has sent its staff in Hong Kong a memo instructing them to stay away from its regional headquarters if they have visited mainland China in the last 14 days. Affected employees will be required to remain at home for at least two weeks.

Shanghai, China’s financial capital, has ordered companies not to reopen until February 9, while the manufacturing hub of Suzhou has postponed the return to work of millions of migrant labourers for up to a week. Suzhou is home to factories owned by companies such as iPhone contractor Foxconn, Johnson & Johnson and Samsung Electronics.

Underscoring concern among policymakers over the economic fallout from the outbreak, China’s banking and insurance regulator announced moves to help businesses affected by the crisis.

The China Banking Regulatory Commission said companies would receive support “through measures such as encouraging appropriate lowering of loan interest rates [and] improving arrangements for loan renewal policies”.

Andrew Milligan, head of global strategy at Aberdeen Standard Investments, said: “Even on the assumption that the authorities do get on top of this outbreak there will be some short-term economic shock”. But he added: “That is a long way from saying the outlook for global markets will be materially different. It’s still early days.”

The coronavirus outbreak comes as China’s economy is already growing at its slowest rate in nearly 30 years. In 2019, the economy grew just 6.1 per cent. As the US-China trade war has hit exports, consumption — which is now threatened by the outbreak — has become a far more important source of growth.

“Everything depends on how rapidly it spreads and how serious it gets, but in principle, this could have a serious impact on consumption,” said Michael Pettis, a finance professor at Peking University and senior fellow at Carnegie-Tsinghua Center. “People are not going out to restaurants and bars.”

In European equity markets, British Airways owner IAG led declines in the airlines sector. High-end British fashion label Burberry, which is heavily exposed to the Chinese market, was one of the biggest luxury victims, slipping 5.5 per cent.

Japan’s Topix, one of the only major regional stock indices trading on Monday, fell 1.6 per cent. Markets in China and Hong Kong were shut for the lunar new year.

Brent crude, the international benchmark, fell 2.2 per cent to $59.35 a barrel, having earlier fallen more than 3 per cent to its lowest level in almost three months.

Investors piled into haven assets, with gold rising 0.8 per cent to $1,578 an ounce. The benchmark 10-year US Treasury yield, which moves in the opposite direction to prices, fell 6 basis points to 1.62 per cent, its lowest level since October.

Iron ore futures, which are tied closely to expectations of China’s economic growth, fell as much as 6.6 per cent to $85 a tonne, while copper fell 1 per cent. Shares in miners also suffered, with Anglo American the worst-performer in Europe with a 4.7 per cent decline.

The drop in oil prices came despite reports that the US embassy in Iraq had been struck by a rocket attack at the weekend. Stephen Innes, chief Asia market strategist at broker Axicorp, said worries over the outbreak’s impact on travel — an important source of demand for crude — were outweighing geopolitical tensions in the Middle East.