Emerging markets on edge as coronavirus spreads from China

  • Markets
  • Monday, 27 Jan 2020

DUBAI: The rapid spread of a deadly virus from China is top of emerging-market investors’ minds as they ponder its impact on the global economy.

Concern the outbreak will develop into something akin to the SARS pandemic of 2003 halted a seven-week rally in emerging markets in the five days through Friday, and continued to weigh on currencies, stocks and bonds on Monday.

With China’s markets closed for the Lunar New Year holidays, the nation’s assets abroad came under pressure.

The offshore yuan slid to the weakest level this year and neared 7 per dollar, while a China-focused exchange-traded fund in Europe plunged 6%, poised for its biggest decline since May.

The death toll in China from the virus climbed to at least 80 and confirmed cases in the Asian nation jumped to more than 2,700.

"The Wuhan coronavirus outbreak has the potential to whipsaw Chinese equities and, indeed, all global risk assets, ” said Seema Shah, chief strategist at Principal Global Investors in London.

"With valuations elevated, asset classes are already vulnerable to shifts in sentiment, and memories of the meaningful economic impact of SARS have the potential to play havoc with market confidence.”

As traders weigh the impact of the virus on Chinese businesses and consumption, the non-manufacturing reading of the nation’s purchasing managers’ index may offer early signs of its effects on the service sector.

The phase-one trade deal with the U.S. this month, combined with recovering global demand, had improved the outlook for Chinese factories and exporters in 2020.

China extended the Lunar New Year break until at least next Monday to help stem the spread of the virus. With holidays across Asia, trading flows may be below average. - Bloomberg

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