China coughs, investors catch a chill

China, with an expected gross domestic product of $15.5-trillion in 2020, has global markets falling as it struggles to contain the new coronavirus, which causes pneumonia and flu-like symptoms.

Online global financial trading and investing firm FXTM sent an economic note on Wednesday that $2.6-trillion in market capitalisation had been erased from global equities in the past nine days.

The virus, believed to have originated in a seafood market in the city of Wuhan, had infected 5 974 people in China; the death toll stood at 132 on Wednesday. A day later these numbers had jumped to 7 700 infected and 170 dead, the New York Times reported.

Although the virus was initially contained, first in the Wuhan region and later elsewhere in China, by Thursday it had spread to more than 10 countries, including Thailand, the United States, Germany, Australia, Cambodia, Canada and Finland.

There are now more coronavirus infections than that of the severe acute respiratory syndrome (SARS), which hit China in 2002 and 2003. SARS infected 5 327 people and resulted in 349 deaths in China.

China has moved quickly to convert empty buildings and build new hospitals. An empty building in Huanggang city, close to Wuhan, was converted into a hospital in just 48 hours. It is also building a hospital in a suburb of Wuhan that will have 1 600 beds and is set to be ready on February 5.

Lester Davids, trading desk analyst at Unum Capital, said that the outbreak has created a risk-off sentiment, which means investors are gravitating towards lower-risk investments, such as gold.

Gold prices hit a three-week high earlier this week. The precious metal was up 0.4%, trading at $1 572 an ounce on Wednesday. Brent crude oil, meanwhile, declined 0.19%, trading at $58.70 a barrel.

Davids said there has been a dramatic shift in emerging markets, more so than in developed markets such as the US.

Generally, emerging markets are considered to be risky asset classes that are vulnerable to downturns, said Davids. This is because emerging markets are more dependent on the developed world and thus more susceptible to feeling the heat.

Davids said on Tuesday that, since the coronavirus outbreak made global news on January 20, the JSE all-share index had fallen 5.3%. But by Wednesday, the index had rebounded somewhat by 1.12%.

On Wednesday the rand was trading at R14.52 to the dollar before it was recorded trading 0.45% weaker, at R14.61, before markets closed.

“Investors always panic in the face of uncertainty and prefer to move their assets to safer ground during these circumstances,” said Anja Smith, of the Research on Socio-Economic Policy unit at the University of Stellenbosch.

Lukman Otunuga, senior research analyst at FXTM, said, “Uncertainty is the enemy of investments.” He said investors are concerned that the virus will slow economic growth in China, which will have ripple effects on the rest of the world. “What we are seeing is uncertainty from the virus, which is rekindling concerns [about] the slowing global growth.”

Otunuga said at this stage it is difficult to quantify what the economic and human cost will be, but key sectors in China such as retail, transport and tourism will be heavily hit.

The World Health Organisation (WHO) said it was alerted on December 31 2019 to a couple of cases of pneumonia in Wuhan City, in China. It was only on January 7 2020, that the Chinese authorities confirmed that they had identified a new virus.

Ces are a group of viruses that cause diseases in mammals and birds. In humans, a coronavirus causes respiratory infections which are typically mild but which can be lethal in rare cases. Common signs of infection include respiratory symptoms, fever, cough, shortness of breath and breathing difficulties. In more severe cases, infection can cause pneumonia, severe acute respiratory syndrome, kidney failure and even death.

Health Minister Zweli Mkhize told a media briefing on Wednesday that it is closely tracking the virus’s movements.

The government has instituted several outbreak measures, including activating outbreak response teams, which are on high alert to detect and manage cases that may arrive in the country, Mkhize said. Screening of travellers from China at major airports has been intensified.

Wuhan is essentially quarantined and five-million citizens have been evacuated. The Chinese authorities have suspended all public transport entering and leaving the city and other areas in Hubei province.

Tshegofatso Mathe is an Adamela Trust business reporter at the Mail & Guardian

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Tshegofatso Mathe
Tshegofatso Mathe
Tshegofatso Mathe is a financial trainee journalist at the Mail & Guardian.

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