27 January to 2 February: The coronavirus-induced uncertainties drive markets

The coronavirus (2019-nCoV) related fears have been spreading globally and dominating headlines. At the time of writing, the number of infected was reported over 15,000 with a mortality rate of approximately 2% (according to the Wall Street Journal). Relative to the SARS in 2002-03, the 2019-nCoV has been spreading faster, whilst the mortality rate remains significantly lower. In reaction to the coronavirus-related news flow, global investor sentiment has been turning increasingly risk-averse. Consequently, stock markets declined during the week, whilst government bond yields eased, as investors sought safe assets. There was also a sharp decline in the Chinese stock market when it reopened Monday morning after the Lunar New Year holiday period. Other markets also exhibited risk-averse behaviour, such as the crude oil market, where Brent prices have now fallen almost 15% since the start of the Lunar New Year holidays. In our view, the market has been pricing in a great degree of permanent loss in demand and thus in economic activity. In order to provide a cushion to the economy and the market, the PBoC injected a large amount of liquidity this morning. Meanwhile, the global economy kept stabilising in December and January, according to the latest soft and hard macroeconomic indicators. Therefore, if it was not for the pandemic, the global economic outlook for 2020 would be brighter, in our opinion.

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