Coronavirus could be more dangerous than thought initially; Outbreak impacts global markets

The country has shut down over ten cities, and the number is likely to go up as the virus reaches different areas of the country.

The Chinese government has taken various steps to try and contain the spread of the virus with measures including shutting down transport within and from infected cities, extending the Lunar New Year holidays, and setting up 1000+ bed hospitals in record time to treat the infected patients.

Worldwide Outbreak

The virus has been spreading rapidly in 16 countries, including China, reporting at least one confirmed case of the novel virus.

While not declared a global emergency yet, the 2019-nCoV has already reached three continents, and it is believed that the actual number of cases might be more than the confirmed figures.

Several countries across the globe have issued travel advisories with global companies such as Facebook, Foxconn and Razer advising their employees to restrict their travel plans to China.

China Shuts Down Stock Markets, Impact on the Global Markets

On 28 January 2020, Chinese authorities decided to suspend trading activities until Monday, 03 February 2020, on its two major stock exchanges - Shanghai and Shenzhen, amidst coronavirus fears. The move is seen as a way to avert panic selling which might lead to a further slowdown in the economy. Analysts believe that this will hurt the global stock markets.

Stock exchanges across the globe are already facing the heat with major markets witnessing a decline on 27 January 2020. In the US, the S&P 500, Dow Jones industrial average and the Nasdaq Composite were down 1.3%, 1.3% and 1.6%, respectively. Further, Stoxx Europe 600 index, Germany’s DAX, and France’s CAC 50 fell 2.1%, 2.3%, and 2.4% respectively. Japan’s Nikkei 225 index also ended in the red with a decline of 2%.

Australian Stocks Tumbles down

The adverse impact of the Australian bushfires has been worsened by the coronavirus outbreak, putting the Australian markets in a more difficult position compared to some of the global markets.

Chinese citizens made approximately 150 million trips overseas in 2018, making the country the biggest outbound tourism market in the world. China recently put a ban on group travel, and this is expected to have a negative impact on countries whose economies are driven by the travel and tourism industry. For Australia, China is the biggest inbound market and group travel ban will have a significant impact on the Australian market.

For coal, steel and raw materials, the demand is likely to take a hit, and thus, such stocks are expected to see some difficult days ahead.

The S&P ASX 200 fell 1.4% compared to its last close, as on 28 January 2020 to close at 6994.5 points. With the exception of the health care sector, all the other sectors witnessed a fall on 28 January 2020.

Travel stocks were hit hard by the ban on travel amidst the virus outbreak. Qantas Airways Limited (ASX:QAN) ended 28 January 2020 at $6.360, a decline of 5.216% compared its previous closing price. Similarly, Auckland International Airport Limited (ASX:AIA) and Flight Centre Travel Group Limited (ASX:FLT) stocks were down 3.717% and 4.123%, respectively, compared to the previous day’s closing price. Webjet Limited (ASX:WEB) saw the biggest decline during the day with a fall of 13.858% from its previous closing price.

Further, with a significant decline in demand, companies such as Crown Resorts Limited (ASX:CWN), Treasury Wine Estates Limited (ASX:TWE), and The A2 Milk Company Limited (ASX:A2M) took a hit with a decline of 5.066%, 5.763%, and 2.71% respectively.

Companies including Orocobre Limited (ASX:ORE), Oil Search Limited (ASX:OSH), Fortescue Metals Group Ltd (ASX:FMG) and NRW Holdings Limited (ASX:NWH) also witnessed significant declines during the day with a fall of 7.91%, 7.523%, 7.292%, and 7.143%, respectively. The slowness in demand also impacted metal and mining industry behemoths Rio Tinto Limited (ASX:RIO) and BHP Group Limited (ASX:BHP) with negative returns of 3.092% and 3.337% generated on 28 January 2020, respectively.

Gold Becomes a Safe Haven Amidst Global Concern; Health Care Performing Well

While the overall Australian market took a hit, there are a few companies that have benefited from the global concern around coronavirus outbreak.

The health care sector has been the only sector that ended in green on 28 January 2020. Companies including the medical device company Polynovo Limited (ASX:PNV), global biotechnology manufacturer CSL Limited (ASX:CSL), laboratory and radiology service provider Sonic Healthcare Limited (ASX:SHL), and medical devices manufacturer Resmed Inc (ASX:RMD) delivered positive returns on 28 January 2020 with returns of 2.473%, 0.631%, 0.224%, 1.271% respectively, compared to the previous days’ closing price.

As investors seek refuge from the ongoing fall in the stock market, gold has emerged as a safe haven with investors looking to shift their respective funds in the asset class. As a result, some of the metals and mining sector companies have performed well as compared to the overall market. Gold miner and producer Saracen Mineral Holdings(ASX:SAR), Australian gold producer Northern Star Resources Limited (ASX:NST) and owner and operator of five gold mines Evolution Mining (ASX:EVN) generated positive returns of 3.476%, 3.093%, and 2.387%, respectively, on 28 January 2020 from their previous day’s closing price.

What is in store?

Countries across the globe have been taking preventive actions to ensure that the number of infected people does not increase. In addition, health care authorities from different countries, along with health care companies, have engaged in developing a vaccine for the novel virus. China, in particular, has been taking various preventive measures in order to limit the spread of the virus that has already reached 16 countries (as discussed above).

However, as seen historically, developing a vaccine is time-consuming, and it might take a couple of years before we have a vaccine ready for the virus. In addition, the spread of the virus through human touch has made it even more challenging to control its transmission, leading to a significant increase in the number of cases. Some experts also believe that it might be the right time to declare the 2019-nCOV outbreak as a global emergency or Public Health Emergency of International Concern (PHEIC).

With the virus spreading at an alarming rate and with no method to control the spread, the threat posed by the virus might stay longer than anticipated.