Oil, equities hit by fears over economic impact of deadly virus

27 January, 2020
Oil, equities hit by fears over economic impact of deadly virus
Fears over the global economic impact of the deadly China virus sent oil prices plunging more than 2 per cent on Monday (Jan 27) to extend last week's sell-off, while safe-haven assets including the yen and gold rallied.

As the death toll from the Chinese epidemic jumped to 80 with those affected worldwide approaching 3,000, analysts said there were growing fears the crisis could become as bad as the SARS outbreak that hammered Asian markets in 2003.

The outbreak of the coronavirus has led China to lock down the epicentre of the disease Wuhan - a city of 11 million people - while imposing tight travel restrictions on a number of other cities including Beijing.

The move comes during the Chinese New Year holiday when hundreds of millions of people criss-cross the country and spend billions of dollars.

The government decided late Sunday it would extend the holiday and related school closures beyond the original Jan 30 end date to "reduce population flows", state media said.

The outbreak has led to the cancellation of Chinese New Year festivities, along with temporary closures of Beijing's Forbidden City, Shanghai's Disneyland and a section of the Great Wall.

Stephen Innes at AxiCorp warned the economic shock to China and the world - just as a growth slowdown appeared to be easing - could be massive.

"The biggest threat to the global economy is not just because the disease spreads quickly across countries through networks related to global travel," he said in a note. 

"But also because any economic shock to China's colossal industrial and consumption engines will spread rapidly to other countries through the increased trade and financial linkages associated with globalisation."

He added: "Unlike 2003 where SARS was less impactful on the developed world market, the rest of the world could feel the pinch this time around."

FLIGHT TO SAFETY
If the new virus has the same impact on China as SARS, the falls could be worse then projected, Innes said, because consumption is a bigger part of the country's economy and its overall growth trajectory is weaker.

Most regional markets were closed for the Chinese New Year break but Tokyo was open and fell 1.9 per cent by the break. Wellington, Manila and Jakarta also dropped.

Both main oil contracts tumbled more than 2 per cent, having dropped more than 6 per cent last week owing to concerns about the effects on demand in the world's number two economy.

The flight to safety saw the yen rally against the dollar, with the unit now up more than 1 per cent from eight-month lows touched earlier this year.

Gold, another go-to asset in times of turmoil and uncertainty, is heading back towards US$1,600 and the six-year peaks touched at the start of January.

While the main focus is on the spread of the virus, traders will also be keeping an eye on the release of earnings this week from top companies including Apple, Facebook and Samsung.
 
Source: www.channelnewsasia.com
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