With a sharp rise in cases around the world, investors are starting to fear the potential of widespread economic damage.
Markets around the world have tumbled, as the spread of coronavirus outside China raises fear among investors.
The UK’s main indices, the FTSE 100, has today (24 February) fallen as much as 3.5% on the back of such fears, while the FTSE 250 fell as much as 3%,
The FTSE 100’s larger dip reflects its more international nature. With roughly 70% of its earnings coming from abroad, the FTSE 100’s fortunes are highly correlated with that of the global economy.
Meanwhile, Germany’s primary index, the Dax, has fallen by around 3.7% and France’s CAC-40 index by over 3.6%.
Asian markets also took a fall. South Korea’s main index led the way, closing down 3.87%. Australia’s S&P/ASX 200 closed 2.25% lower and Hong Kong’s Hang Seng gave up 1.79%.
The sharp falls in equity markets comes on the back of news that the number of coronavirus cases outside of China has started to sharply accelerate, with a particularly notable rise in cases in Italy, South Korea and Iran.
Until recently, markets had had a relatively muted response to the risk of coronavirus. First, markets treated the virus as a problem primarily confined to China, and to a lesser extent parts of Asia. Second, the assumption of many seemed to be that any adverse effects on the global economy could be alleviated by central bank easing.
However, with a sharp rise in cases around the world, investors appear to now be questioning this narrative, accepting the potential for the virus to spread into a global pandemic with greater ramifications for the global economy than previously thought.
Spooked investors have continued to pile into safe-haven assets, as they usually do when major threats to the working of the global economy appear. Gold, for example, is now trading at a 10-year high, while US 10-year government bonds have seen their yields fall to the lowest level since July 2016.
Oil prices also took a hit, on the assumption that lower economic growth and greater travel restrictions will reduce energy demand.