Almost half a trillion pounds was wiped off global stocks on Monday as the rapid spread of China’s deadly coronavirus rattled markets. Companies trading on London’s main market lost £53bn in value, with the FTSE 100 suffering its worst one-day drop since the start of October, while the price of oil fell sharply. The virus is seen…
Almost half a trillion pounds was wiped off global stocks on Monday as the rapid spread of China’s deadly coronavirus rattled markets.
Companies trading on London’s main market lost £53bn in value, with the FTSE 100 suffering its worst one-day drop since the start of October, while the price of oil fell sharply.
The virus is seen as a new “black swan” event for global equity markets, many of which ended last week at all-time highs despite lingering economic uncertainty.
“The market selloff that everyone was waiting for is here,” said Edward Moya, a senior market analyst at currency exchange platform Oanda. “The US stock market rally was overextended, and investors will use the coronavirus epidemic as the trigger needed to deliver a pullback.”
European shares sold off steeply, with miners, airlines and luxury groups suffering the biggest drops, after shares in Japan also plunged.
In the US, the Dow Jones Industrial Average temporarily erased its gains for the year so far. Bond yields rose, while safe-haven assets such as gold and the yen grabbed gains.
Chinese shares remained isolated from the fallout: after suffering a 3.1pc fall last Thursday, the country’s stock markets have been held in statis, closed during the country’s major Lunar New Year holiday. They are due to reopen on Friday, but a Bloomberg report said trading may be delayed until next Monday.
British Airways-owned IAG was the biggest faller among Britain’s blue chips, dropping 5.5pc amid worries it could be exposed to a travel lockdown in Asia, from where it draws around 8pc of its passengers.
London’s cluster of listed miners also suffered, caught as commodity prices sank on worries the virus’s fallout may disrupt manufacturing in China. Wuhan, the city at the epicentre of the outbreak, is located in the country’s industrial heartlands.
Economists have reacted cautiously to the emergence of the virus. Parallels have been drawn with the 2003 outbreak of Sars, which had an initial impact upon Chinese markets but eventually fizzled out.
The outbreak threatens to upend start-of-year forecasts that predicted an improved economic outlook for 2020 amid trade relief, a Brexit breakthrough and a ‘bottoming out’ in global manufacturing.
Although details about the new coronavirus are limited, Royal Bank of Canada analyst Tyler Broda noted that China’s rapid expansion over the past two decades would amplify the impact of any disruption. He said China’s share of global iron and copper has more than doubled since Sars.
“In our view, even a less virulent disease could create more impact than comparisons to 2003 and this appears to be what the copper and iron ore markets are telling us,” Mr Broda wrote in a note to investors.
Seema Shah, chief strategist at asset management firm Principal Global investors, said a cocktail of factors had elevated the risk the coronavirus poses to markets compared to previous contagion fears. She pointed to the proliferation of social media over the past decade creating an echo chamber to “amplify market anxiety”, the increased connectedness of supply chains, and high assets valuations that leave equities vulnerable to a shock.
Oil’s precarious start to the year continued as crude prices fell more than 2pc, to their lowest level in three months. Analysts at JP Morgan predicted a further hit of up to $5 a barrel if the outbreak develops into a full-blown pandemic.
Producers, including Opec, are concerned that the outbreak will hit global demand. The cartel – which is de facto led by Saudi Arabia – have discussed making deeper cuts to production to prop up the price of oil, industry sources say.
Saudi Arabia’s Prince Abdulaziz bin Salman said that the drop in oil prices was “primarily driven by psychological factors and extremely negative expectations adopted by some market participants despite its very limited impact on global oil demand.”
He added: “Such extreme pessimism occurred back in 2003 during the Sars outbreak, though it did not cause a significant reduction in oil demand.”