Coronavirus continues to spread — and the Asian markets feel the symptoms

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Updated: 03 March 2020


  • The death toll was confirmed on Monday to total 81 people.
  • As the World Health Organisation sends delegates to Wuhan in China to assess the situation, the only policy tools available involve public health measures.
  • These measures may or may not stem the spread of the virus but will impact the Chinese economy.
  • Hubei province is now on lockdown, and equity and oil prices are tumbling as traders price in the economic consequences of the outbreak.


The outbreak of the coronavirus couldn’t have come at a worse time for the Chinese economy. The Chinese Lunar New Year is one of the most important times of the year in terms of consumer spending. It also marks a period when Chinese citizens criss-cross the country to make the most of the holiday. Concern that the massive amount of travelling will spread the virus has seen the Beijing government take the unprecedented step of extending the holiday by three days. Similar action has been taken by tech giant Tencent, which has a market capitalisation of $3.6bn. The firm’s staff have now been instructed to work from home until 7th February.


Source: New York Times


In an effort to address the issue, the World Health Organisation (WHO) has sent a team to the Hubei province to consider what next steps might be taken. They arrive amid rumours that the Chinese authorities are applying pressure on the WHO to not declare the situation an international emergency. Chinese news reporting can be particularly opaque at times. As the one thing that financial markets don’t like is uncertainty, comments such as those of Sophie Richardson, director at Human Rights Watch, spread concern. Speaking with the Telegraph, she said:

“I have real concerns about people who are supposedly ‘spreading rumours’ being harassed by authorities, especially at a time when people are concerned they are not getting accurate information.”

Source: The Telegraph

With any vaccine subject to months of testing before being approved, the only tools available centre on public health. Not only are there question marks about the extent that the virus has spread, but there are also perennial concerns that government economic data is notoriously opaque and as yet not released.


Back data testing

The most comparable example is the SARS epidemic of 2003. In Q1 of that year, China GDP growth was a punchy 11.1%, but the SARS outbreak meant that Q2 growth data was only 9.1%.

One difference between SARS and the current coronavirus outbreak is that this time, the epicentre of the outbreak is in the heart of the Chinese mainland. Rather than impacting the coastal areas, the focus of attention has been the city of Wuhan and Hubei province. The reaction of the oil price to last week’s events points to many in the market thinking that the difference in location could be significant.

The Wuhan region is a transport hub and manufacturing base. It’s benefited from years of state support as the Beijing administration has tried to spread the benefits of growth across different regions and sectors. The coronavirus outbreak in Wuhan could cause the Chinese economy to stutter for longer than SARS. If the epidemic of 2003 caused the average Shanghai citizen to put off eating out, then the 2020 version has seen one of the most important logistical hubs in China go into lockdown.

“In April 2003, at the height of the epidemic, the China Transport Index dropped 40% year on year.”


Shanghai Composite Index (TVC:SHCOMP) — five-day price chart:

Source: TradingView


Chinese economic activity also makes up a larger percentage of global GDP than back in 2003. The Shanghai index was down over 3% on Friday, but reflecting the knock-on effects for the world economy, the Japanese Nikkei share index fell a further 2% on Monday when Chinese markets were closed for the holiday. The Nikkei move was also confirmed by increased trade volumes in the last two trading sessions.


Nikkei 225 Index — one-hour candle — 17th January–27th January:

Source: MetaTrader


China is only just beginning to recover from the global trade tensions. Recent data that reported a pick-up in industrial production may now be snuffed out. Hubei province is responsible for a not-insignificant amount of China’s GDP (40%) but, importantly, acts as a logistics hub for the entire economy.

Source: UNCRD


Continued uncertainty

Oil price volatility has picked up as prices of crude have also fallen. The move is a sign of concerns held by those monitoring global trade volumes.


CBOE Crude Oil Volatility Index — five-day price chart:

Source: TradingView


The price action in crude oil markets looks set to offer up numerous trading opportunities. News reports on the subject continue to significantly alter the perception of the situation.


Crude Oil (MYMEX:CL1!) — five-day price chart:

Source: TradingView


Sunday saw the head of China’s National Health Commission, Ma Xiaowei, warn that those carrying the disease don’t show flu symptoms before becoming contagious to others. This is a significant difference from the 2003 SARS virus. Xiaowei said:

“The shortest time before the disease’s onset was one day. The longest was 14 days. This is very different from SARS.”

Source: The New York Times

The current lockdown of Wuhan appears to be a best effort at controlling the spread of the disease. It is, however, unlikely to be a ‘silver bullet.’ Equity and oil markets both look set to react to the global appetite for risk when such an important part of the world economy is subject to such uncertainty.