“It may be a much longer road”, CIO of the investment solutions group at State Street told Bloomberg TV on Friday, commenting on the economic fallout from the coronavirus.
As the week comes to a close, cases outside of mainland China are multiplying, causing considerable consternation among market participants. As documented here on Thursday, South Korea is becoming a hot zone. The number of reported cases jumped 48 on Friday, bringing the total to 204.
China now has 75,465 reported cases – officially, anyway. At this point, the data out of China is being revised on a near daily basis, with sometimes conflicting rationales, making it virtually impossible to get a clean read on the situation.
While South Korea’s case total is more than twice as large as Japan’s, some say the situation in Japan is more worrisome. Bloomberg sums it up, writing that “Japan is seeing cases in multiple, unconnected areas across the country and authorities have been scrambling to understand where they’re coming from”.
Clearly, the Diamond Princess cruise ship situation has raised all manner of alarm bells, and some fret that those evacuated from the vessel may be carrying the virus even as they test negative – that is, they could be fine one day, and then sick the next. As the director of the School of Public Health at Hong Kong University, Keiji Fukuda, put it: “That’s just how infections work”.
Japanese and Korean equities have responded to the threat this week. Although Japanese shares stabilized over the past three sessions thanks in part to the tumbling yen, the Topix has fallen for two straight weeks.
The Kospi, meanwhile, fell sharply Friday, brining this week’s losses to more than 3.5%. The won is feeling the pain too.
First-20 days export figures out Friday showed exports to China (South Korea’s largest trading partner), shrank 3.7% and imports from the country slumped 19%. It will probably get worse before it gets better.
Overall, shipments during the first 20 days of February were up 12.4%, but that’s not wholly reliable. In addition to not capturing the entirety of the month (which, given the virus is rippling out across the region, is important) the data is also distorted by three additional working days due to Lunar New Year effects.
Analysts cautioned markets should focus on average exports per working day, which contracted more than 9%, almost triple the fall seen during the first 10 days of February. That’s a direct consequence of the virus.
“The outbreak of the virus significantly pulled down shipments out of Korea, and it will only worsen in the coming months”, Reuters quotes Standard Chartered Korea economist Park Chong-hoon as saying on Friday.
Total shipments to China, South Korea’s biggest trade partner, fell 3.7% despite the period having more working days than last year. Imports from China plunged 19%.
“The coronavirus appears to have hit trade quite a bit”, Lee Hong-bae, a professor of international trade at South Korea’s Dong-Eui University told Bloomberg. “The fall in both exports and imports with China shows the supply chain is sputtering”.