Risk assets stabilized on Wednesday, as global markets assess the adequacy of China’s response to a deadly virus that’s conjured memories of the SARS outbreak.
Officials in Beijing promised China has ramped up efforts to contain the spread of the mysterious new coronavirus that’s killed nine people and infected hundreds. The flu-like malady, which authorities have traced to Wuhan and is believed to have originated in animals, has spread to Beijing, Shanghai, Macau, Hong Kong, South Korea, Japan, Taiwan and the US.
China is closely monitoring transportation nodes and has essentially closed Wuhan. “We are still on a learning curve”, Chinese Center for Disease Control and Prevention head Gao Fu, said Wednesday. “The disease will continue to develop”.
“The rise in the mobility of the public has objectively increased the risk of the epidemic spreading and the difficulty of prevention and control”, vice-minister Li Bin of the National Health Commission told reporters Wednesday.
Worries that holiday travel during the Lunar New Year could accelerate the spread gripped markets on Tuesday, sending shares in Asia tumbling. Wednesday was better, although jitters persist. Dip-buyers showed up Hong Kong, where the Hang Seng bounced. The yuan stabilized after its worst daily decline in five months.
“I would expect a lot of people — candidly, like we are — that are looking for opportunities to buy rather than sell” on the swoon, a partner and portfolio manager at Villere & Co told Bloomberg.
In the same vein, Citi thinks that eventually, any pullback in emerging markets could be a buying opportunity, although the bank’s Dirk Willer emphasized that investors will need to see evidence that the virus is under control. Tuesday was one of the five worst sessions for EM equities in a year. Implied vol. on the ETF spiked.
The situation will probably get worse before it gets better, Citi added.
The CDC concurs. “This is an evolving situation”, said Nancy Messonnier, director of the CDC’s National Center for Immunization and Respiratory Diseases. “We do expect additional cases in the United States and globally”.
Goldman frets that the economic impact from a pandemic could weigh on demand for crude. The bank reckons a negative shock of 260k b/d (mostly from jet fuel demand) could have a $3/bbl impact on crude prices, although an OPEC response could mitigate things.
Signs of angst continue to manifest in Chinese government bonds. Yields on the benchmark 10–year notes fell below 3%, declining for a fourth consecutive session.
Donald Trump (noted virologist) weighed in during an interview with CNBC. “The CDC has been terrific”, he said. “We’re in very good shape [to handle the virus] and I think China is in very good shape also”.
(Phew.)
