Coronavirus in China Sent a Ripple of Risk Aversion Through Markets

Global shares took a beating on Tuesday, wiping out all gains made at the start of the week as mounting concerns about a new strain of coronavirus in China sent a ripple of risk aversion through markets.

Authorities in China confirmed that a new virus could be spread through human contact, reporting 15 medical staff had been infected and a fourth person had died.

Safe-haven bonds and the yen gained as investors were reminded of the economic damage done by the SARS virus in 2002-2003, particularly given the threat of contagion as hundreds of millions travel for the Lunar New Year holidays.

“I’m not an expert in the pandemics, but you can look at previous examples like the SARS outbreak which also originated from Asia,” said Cristian Maggio, Head of Emerging Markets Strategy at TD Securities in London.

Noting that China had initially downplayed the full extent of the SARS outbreak, he said “I think the market might be fearing something similar.”

The mood swing saw MSCI’s All-Country World Index slip 0.4%, wiping out gains made at the start of the week on Monday. Asian markets were hit particularly hard.

Hong Kong, which suffered badly during the SARS outbreak, saw its index fall 2.8%.

Japan’s Nikkei lost 0.9% and Shanghai blue chips 1.7%, with airlines under pressure. The caution spread to E-Mini futures for the S&P 500 which eased 0.5%.

The chill in Asia carried over to European markets, where shares of luxury goods makers - which have large exposure to China - were among the biggest fallers. [.EU]

Germany’s 10-year government bond yield touched one-week lows. [GVD/EUR]

Investors had already been guarded after the International Monetary Fund trimmed its global growth forecasts, mostly due to a surprisingly sharp slowdown in India and other emerging markets.

There had been some relief as U.S. President Donald Trump and French President Emmanuel Macron seemed to have struck a truce over a proposed digital tax.

The two agreed to hold off on a potential tariffs war until the end of the year, a French diplomatic source said.

Trump is due to deliver a speech at the World Economic Forum in Davos later on Tuesday, and trade and tariffs could be on the agenda.

Read here