How the Corona Virus is Affecting Global Stock Markets

By: Justin_Weinger

The spread of the coronavirus which emanated in Wuhan China has likely weighed on global growth. For weeks, nearly all transportation through out cities around China were halted. The spread of the virus appears to have stopped accelerating, while the number of cases continues to grow. Stocks around the globe have seen mixed results. The rush to safe-haven assets, has allowed US equity market to rally.

Rush into US Assets

February saw the dollar index surge to a near 6-year high, as investors pile into US assets. The strength of the greenback has been driven by capital flows away from Asian shares, and into the United States. While the coronavirus will reduce global growth and likely eat into both US and China GDP, there is no double as to which country will fare worse.

Assets that provide liquidity are the ones that are enjoying the most robust gains. The hot money is moving into US large cap technology shares. Microsoft, Apple, Amazon and Alphabet have hit all-time highs on heavy volume which shows that investors are pushing cash into these names. The liquidity provided by these shares, allows for fast entry into the US market.

Fixed income assets are also experience a rally. US bonds have increased in value driving US yields down. This comes despite better than expected jobs data in the US in January which shows that the US is currently beating to its own drum. The US Fed said that it is monitoring the coronavirus, but Fed officials have stated that they do not think the impact will be strong enough for the Fed to have to make a move.

Chinese Markets Retrace

The Chinese stock markets have been trading under pressure as the coronavirus spread throughout China. As cities began to wall off access, perceptions that growth would stall lead to a selloff in the Shanghai market which is down nearly 5% year to date.

Will the Corona Virus Spread?

The poor performance of the China markets has yet to flow over into US stocks. This is mainly because of a flight to quality and that the coronavirus has not spread in the US. There is the possibility that the current efforts don’t contain the virus. The Wall Street Journal reported that an evacuated passenger on a US chartered flight out of Wuhan was the first to test positive for the coronavirus. Unfortunately, the passenger was given a negative result before and allowed to mix with other evacuees that were quarantined.

The Bottom Line

The flow of capital will likely continue into the US, especially if US data continues to point to a moderate expansion. The coronavirus has negative impacted Chinese shares and has created a safe-haven flow into US assets. Not only are stocks higher, but bond prices and the dollar have increased since the virus began to spread.

The Fed appears ready to handle a situation that shows that US growth is significantly impacted by the virus, but the current thinking is that it won’t be. The S&P 500 index is up nearly 4% year to date which contrasts with the Shanghai compositive which is down nearly 5% during the same period. Chinese cities are walled off from one another and many countries have significantly reduced two-way air traffic to and from China. While this situation looks like its improving, there is still unsurety that China can get this virus under control.

By Justin Weinger

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