The question being batted around is whether this is contained to a first quarter hit or whether markets and profits will falter longer term from the coronavirus, now on the brink of becoming a pandemic as cases rise outside China.

Heeding warnings that markets were being too complacent over the coronavirus spread, nerve broke on Friday with sell offs in the US that spread across European markets on Monday in the wake of more countries reporting cases, including several deaths in Italy that have put northern towns in lockdown. Below analysts differ on how these developments are weighing on investment decisions and profits as supply chains and travel continue to be disrupted. Notable in this is the warning issued by Apple last week.

The Global CIO Office
As we had suggested last week, we thought it would take the virus to land at the door-step of the West before equities would start to take fright. With an increasing number of cases in Italy but also spreading to other parts of Europe and the United States investors are beginning to realise that COVID-19 is not just an Asian supply line problem but a significant challenge to the global economy.

The IMF continues to doggedly work with a “revised“ forecast that suggests just a 0.1 per cent hit to global GDP growth for the first quarter. “In our current baseline scenario, announced policies are implemented, and China’s economy would return to normal in the second quarter. As a result, the impact on the world economy would be relatively minor and short-lived,” said the head of the IMF. To be fair, they say they have other forecasts for a more extreme disruption to global activity from COVID-19. 

The hit to the global economy appears to be well beyond a simple 0.1 percentage point off global growth. The authorities in most parts of the world simply had no decent plan to deal with such a problem. Doctors have bemoaned the fact that most governments were not prepared to see the gravity of the damage a pandemic could do to the economy nor how high the risk was of it occurring.

Rupert Thompson, chief investment officer at Kingswood
"Until Friday, global markets were still hovering around their January highs. But markets fell back 1 per cent or so on Friday and the UK and European markets are down more than 3 per cent this morning.

The recent spread of the virus outside of China, with Korea and Italy both now imposing quite radical containment measures, has spooked equity markets. It has also fuelled further gains in safe havens such as gold and US Treasuries.

While cases outside China are rising fast, which is undoubtedly worrisome, one should not lose sight of the fact that they are still below 2,500. This is dwarfed by the 77,000 cases in China, where the latest news has actually been very reassuring.

Cases in China have in recent days been rising at less than 1 per cent per day, down from 15 to 20 per cent per day in early February. The radical containment measures imposed by the authorities seem to have worked and restrictions in cities such as Beijing are now starting to be relaxed. If China has managed to contain a much bigger outbreak, it can only increase one’s confidence that the, as yet, much smaller outbreak outside China can be brought under control.

The disruption caused by the virus will hit economic activity significantly in the first quarter, with global growth very likely to grind to a halt. But we continue to believe that the outbreak is likely to follow the path of previous such health scares with growth rebounding in the second and third quarters. Our confidence on this front is increased as monetary policy will be relaxed if necessary to limit the damage. Indeed, the Chinese authorities have been doing exactly that.

We retain our neutral equity weighting for now. Prior to the outbreak of the coronavirus, we had been planning to add to our equity positions if markets see a significant correction. Our inclination is to stick with this game plan. although any such move would clearly hinge on the latest developments.

Chris Towner, director at Chatham Financial
“This latest news has caused markets to start to price in the risk that the coronavirus reaches a point where new infections no longer come from Chinese nationals. It makes the virus far harder to contain and if the spread continues more broadly across the globe then trade and travel are bound to be further impacted. It is clear now that Q1 global growth will be impacted by the spread of the virus especially in China where small- to medium-sized businesses are strapped for cash amid the obligation to carry on paying staff.
 
“So, the questions being asked now are how much further can this virus spread? Also, how quickly can a cure be found? There is hope that we are now through the deepest and darkest of winter and warmer temperatures may help to restrict the spread. However, we are clearly not yet out of the woods and for now financial markets will remain on edge.”
 
Adam Vettese, analyst at multi-asset investment platform, eToro
“Investors are now waking up to the fact that the coronavirus could become a global pandemic. The ‘out of sight out of mind’ approach is now clearly no longer an option.

“The most worrying thing about the outbreak is that we have no idea how long it will last. That causes huge problems for firms that operate across borders, such as airlines, or who rely heavily on global supply chains, such as manufacturers and healthcare companies. Unless governments can get a grip on the outbreak – and fast – it could be the most disruptive thing to hit markets in many years. That will almost certainly see investors nursing big losses.”

George Lagarias, chief economist, Mazars
"One of the milestones we had previously identified, was the moment the coronavirus landed in the west. Awash with liquidity as the markets may be, when danger hits close to home traders might take the sanguine view and avoid commuting - as well as big bets on equity markets. In the past few days, the number of cases in Italy rose sharply, especially in the North which is more tourist-friendly at this time of year. As a result, equity markets lost 1 per cent on Friday and early futures indicate a similar drop on Monday. The famous Venice Carnival is cancelled and pictures of people lining up outside supermarkets, as well as travel bans, are making the news globally. Is the virus dangerous enough to disrupt the green patch of economic data we have enjoyed since the beginning of the year? Probably.

Just last week Apple forecasted a drop in iPhone sales in China. There will be a cost in consumer-related economic activity. However, the base case scenario at this point is that the impact will be restricted to Q1 2020.

Is the virus enough to take the markets off their liquidity high? Insofar as it doesn't directly threaten the structure of government and the capitalist system, probably not. So this is one of the times for investors to be patient and even contemplate what they can do if they have cash sitting on the side.

Our suspicion is that over the medium term, markets will probably be more worried with the US presidential race, Angela Merkel's replacement or another possible drop in durable goods orders. Good news is they probably will not have to worry about demand side inflation."