31st January 2020 – Coronavirus continues to be a huge issue for China, impacting everything from health, obviously, to investment. How are markets reacting and how will financial firms cope? GlobalData’s private banking editor, Patrick Brusnahan, asks the experts.
Brusnahan says: “Coronavirus is having an astounding effect on everything and financial services is no exception.
“Major banking groups including Goldman Sachs, UBS, and Credit Suisse have asked their bank workers in Hong Kong to work from home if they have recently travelled from China in the wake of the deadly Coronavirus outbreak.”
Chris Towner, Director at financial risk advisors JCRA, told GlobalData: “With the death toll rising above 100, financial markets are still trying to gauge the potential reach of this deadly virus. By comparison, the SARS virus impacted 8098 people with 774 fatalities. The question now is how quickly can this virus be contained and, in the meantime, how many countries and economies will be impacted?
“In times of risk aversion money normally floods into the Japanese yen and the Swiss franc. Due to the proximity of Japan the Swiss franc is currently seen as the ultimate safe haven and has strengthened by over 3% against the Euro from its pre-Christmas level of CHF1.10 to the Euro in the 1.06s, the strongest level since April 2017. Markets will now be focusing on the pace of the spread of the virus and whether there are signs of acceleration or deceleration.”
Cyrique Bourbon, Asset Allocation Strategist at Brown Shipley, told GlobalData: “Trying to gauge the precise impact of Coronavirus on China and the world economy is still, at present, an impossible task. There remains enormous uncertainty around the potency of the virus, how effective control methods will prove, and ultimately how long or short-lived the outbreak will be.
“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 the outbreak gets under control.”
Rupert Thompson, Chief Investment Officer at Kingswood, told GlobalData: “In assessing the potential economic and market impact – rather than the very evident human cost – the SARS outbreak is as good a starting point as any. That outbreak hit Chinese growth and the Chinese equity market significantly, but the impact was short-lived with both rebounding within a matter of months. For global equities there was minimal impact. This time round, the Chinese economy is much larger and much more connected with the global economy. The Chinese authorities have also imposed much more draconian measures to try and halt the virus. The short-term impact on the Chinese economy is therefore likely to be considerable – not that there will be any hard data released to measure this for a good couple of months.
“As for global equities, the risk is clearly that the news gets worse before it gets better and the market correction could well have further to run as a result. Indeed, corrections of 5-10% are surprisingly common.
“If we do see a 5-10% correction, we are currently minded to use the opportunity to add to our equity holdings and move overweight from neutral. That said, we would only implement such a move following a careful reassessment of the situation.”
