Qian Wang, PhD, Asia-Pacific chief economist,
The coronavirus that is making news for its lethal effect and rapid spread - and for the selling it has triggered in global stock markets - has a lot in common with the SARS virus that jolted China’s economy in 2003. 

As is suspected with the new coronavirus, like SARS (severe acute respiratory syndrome, also a coronavirus), it started in animals and spread to humans, and quickly became capable of human-to-human transmission. Human contagion coincided with the start of the Chinese New Year, when hundreds of millions travel for China’s most festive season.

SARS killed almost 10 per cent of the more than 8,000 people who caught it, according to the US Centers for Disease Control and Prevention, and most of the deaths were in China. It knocked 2 percentage points off China’s GDP growth in the second quarter of 2003, with transportation, tourism, and hospitality hit especially hard. Those sectors and retail are likely to be among the hardest-hit again. 

The main effect on China’s economic growth is likely to be one of sentiment, with the government’s response determining the degree to which people are fearful or confident.

The good news is that the Chinese government has taken serious actions quickly. Its disclosure of information and policy responses have vastly improved since the SARS outbreak. Vanguard, therefore, has maintained its outlook for China’s 2020 GDP growth at 5.8 per cent, though the risk is clearly tilting towards the downside. 

Kristina Hooper, chief global market strategist at
We would note that an outbreak’s effect on market confidence can far exceed its actual impact. The Chinese economy is likely to be more greatly impacted by this new virus, all else being equal, given that the economy is more dependent on consumer spending now than it was in 2003 at the time of the SARS outbreak.

On the positive side, the Chinese government’s response to this crisis has been much better. For example, during the SARS outbreak, Beijing tried to block an investigation by the World Health Organization (WHO) and stifled all media reporting of the mystery illness for months. This time around, government officials have acted more transparently and aggressively. Chinese healthcare service providers have learned and improved notably over the past 17 years and are much more sophisticated in their ability to handle the viral outbreak.

We expect stock prices to continue falling in China and other Asian markets and, to a lesser extent, globally. We also expect lower oil prices, higher gold prices, and a likely appreciation of Japanese yen against the US dollar.

The market reaction may deepen further if the virus spreads wider. The most recent revelation of new infections in China and elsewhere suggests that the market will be faced with further downside risks. But when the coronavirus is successfully contained, we believe the situation should normalise and financial markets are likely to stabiliee.

Investors with longer time horizons may want to stay the course and maintain their current allocations, as history has shown that health scares and their impact on markets are very short-lived.

Cyrique Bourbon, asset allocation strategist at
There remains enormous uncertainty about the potency of the virus, how effective control methods will prove, and ultimately how long or short-lived the outbreak will be.

The immediate impacts are, of course, clear. There is evidently a direct impact on the affected region; Wuhan is a major transportation hub in the region and an important production centre for the already battered automobile industry. The psychological impact on consumer confidence could, meanwhile, further undermine the already weakening overall consumption in China, as witnessed during the SARS-outbreak. It is also very clear that travel, tourism and leisure industries worldwide could take a severe direct hit.

Knock-on effects of the crisis on other sectors are also already visible. For example, the sharp drop in the oil price is a direct consequence of the expected onslaught on air travel. However, while markets logically discounted the increased risk premium into the most directly exposed travel and leisure sectors, they also concluded that pharma and healthcare stocks should profit from the crisis. And safe-haven assets such as German government bonds, Treasuries, gold, the Swiss Franc and Japanese Yen have also profited. Investors holding onto a well-managed diversified portfolio have thus largely been shielded from the crisis.

Moreover, many see the Corona-story as just the spark capital markets needed for a healthy and arguably overdue adjustment in risk premia after the very strong performance over the last few months. A correction could open up new and more interesting investment possibilities.

At present, we maintain our existing allocation views, recommending diversified portfolios where our favoured safe-haven assets remain gold, US treasuries as well as the Japanese Yen. Investors should remember not to panic and hold on to their defensive positions as part of a diversified strategy, and closely monitor the situation for signs of the outbreak getting under control.