Is the Coronavirus’ Impact on Financial Markets Overblown?

This isn’t the first time a virus has affected global financial markets, with many drawing parallels to the SARS outbreak.

The Coronavirus continues to see an outbreak globally with the latest estimates putting the death total over 900 persons.

With fear continuing to spread and millions disrupted, financial markets have certainly been impacted.

Typically, most problematic geo-political or economic events have always managed to yield some material effect on markets.

This was seen earlier this year with the rising tensions between the US and Iran.

However, the Coronavirus is itself an entirely different animal, whose impact is far more globally reaching.

This article will explore how the virus has correlated to financial markets and which instruments should be looked at.

How does the virus affect global markets?

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This isn’t the first time a virus has affected global financial markets, with many drawing parallels to the SARS outbreak.

The Coronavirus has affected market sentiment not only in China but many other locales, showcasing the global dependency the country has on worldwide markets.

Currently, the virus has led to the shutdown of three Chinese cities as well as the Hubei province. This has disrupted the travel of millions, with severe economic ramifications.

For example, analysts have pointed to Macau and other cities whose revenues were almost completely dependent on now absent Chinese tourists.

With the epidemic already spreading globally, including to Europe and the US, the risks for the world markets will increase even more.

A case for safe-havens

The Coronavirus epidemic is not unlike other stresses to markets, which cause fear and panic.

These factors almost always lay bare knee-jerk reactions by investors, culminating in an exodus towards safe-haven currencies or commodities.

First-and-foremost, gold has seen tremendous interest and flows since the initial outbreak of the Coronavirus.

While it is difficult to distill its initial behavior from the Iranian tensions, the immediate aftermath of hostilities did provide an accurate window into gold’s behavior with the spread of the virus beyond Wuhan.

The middle of January has seen the yellow metal trend upwards as investors move cash into gold.

This is hardly abnormal and any outflow of headlines attesting to further outbreaks or a pandemic designation from the World Health Organization (WHO) could further this trend.

The Japanese yen has also historically been the beneficiary of any global turmoil or market trauma. This has been corroborated with the outbreak of the Coronavirus, though not as pronounced as in the case of Iran earlier last month.

Ultimately, the virus has certainly yielded a short-term effect on markets and movement towards safe havens, though this is starting to reverse.

Should any headlines surface showing the discovery of a new vaccine or preventive measures that are effective, markets will respond in kind.

Asian stock markets in flux

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The Coronavirus has negatively influenced many Asian stocks and those of companies that heavily rely on Chinese tourists.

One sector that has taken the largest hit has been travel, with Chinese New Year plans put on hold or ultimately scrapped.

Macau has seen just 10-15% of its normal volume of tourists and many global airlines have suspended flights to China, further disrupting flows. Markets in China recently opened this week and were down over 7%.

Any signs of slowing the outbreak will go a long way in stabilizing Asian markets over the next few weeks.

By extension, the S&P 500 has been virtually unaffected, though travel companies, airlines, and others stand to be materially influenced by the disruptions to China.

Coronavirus’ impact overblown?

Relative to the US-Iranian tensions last month, to name the most recent example, the Coronavirus has not been as impactful outside of China for global market sentiment.

Many analysts tend to take a doom and gloom approach but thus far the negative sentiment has not matched these assessments.

This is not to say that financial markets will immediately rebound in terms of sentiment or appetite.

Indeed, the spread of the virus would negatively affect the global market outlook. Until then, its likely to portend a negative impact on the Asian markets.

Disclaimer: The content of this article is sponsored and does not represent the opinions of Finance Magnates.

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