Earlier this month, markets deftly navigated the prospect of a global military conflagration and came away unscathed.
Now let’s see how traders and investors handle a bout of deadly viral pneumonia.
Risk assets shuddered on Tuesday after three more deaths were confirmed in an outbreak of a new coronavirus – the death toll is now up to a half-dozen. Human-to-human transmission was confirmed, a development which appears to have significantly worsened sentiment.
“The recent outbreak of novel coronavirus pneumonia in Wuhan and other places must be taken seriously”, Xi said in his first public statement on the burgeoning crisis. “Party committees, governments and relevant departments at all levels should put people’s lives and health first”.
When it comes to markets, Hong Kong is “patient zero”. Shares also suffered Tuesday from a Moody’s downgrade which, while not surprising, serves as a reminder that the city’s social unrest appears to be intractable.
“The absence of tangible plans to address either the political or economic and social concerns of the Hong Kong population that have come to the fore in the past nine months may reflect weaker inherent institutional capacity than Moody’s had previously assessed”, the ratings agency said in a statement.
H-shares dropped the most since October of 2018, diving more than 3%.
The Hang Seng had its worst day since Trump broke the Buenos Aires truce on May 6. Volume was more than 50% above its 30 day average. The MSCI Hong Kong Index plunged 2.7%, nearly to its 200-day moving average.
Hong Kong shares had been a standout performer since December, outpacing gains in other benchmarks. That looks poised to change.
The Hang Seng’s seven-week winning streak was the longest since early 2018, when city shares staged an absurd rally amid the global melt-up that followed the Trump tax cuts. As Bloomberg notes, “Tuesday was the last day mainlanders could trade Hong Kong equities through trading links with the city before the week-long Lunar New Year holiday in China”.
To be sure, Hong Kong already had enough problems. But when it rains, it most assuredly pours.
“There is a risk of an exponential outbreak of a SARS-like virus, so investors are choosing to be risk-off” before the Lunar New Year holiday, Zhou Hao, an EM economist at Commerzbank said Tuesday.
The Hang Seng volatility index surged the most since November.
At a briefing, Chief Secretary Matthew Cheung said the city is “on extremely high alert”. Although there have been no confirmed cases of the new virus in the city, more than 100 people were treated for pneumonia symptoms as of Monday morning. The majority of those patients have been released from the hospital.
The city is preparing for the worst, Cheung added.