Market Overview

24 January 2020

Coronavirus contaminates markets with risks

World markets are starting to assess new risks amid the breakout of the new coronavirus (2019-nCoV) in China. Markets fear the decease could quickly become worldwide that would mean restriction in traveling, goods production and exports as well as consumption. Investors are reminded previous SARS virus outbreak in the same Chinese province in 2002-2003 led to $59 billion losses, according to Asian development bank.

Fears made risky assets much less attractive and led to a decline on the emerging markets to December 2019 lows. Shanghai composite dropped to 2950 on Jan. 24 from 3096 recorded at the beginning of this week. Brent weakened to $61.3 on Friday afternoon from $65.7 a barrel. Such harsh drop could be rather emotional while China and other countries are now better prepared to counter such deceases with all their expertise in decease control. China and other affected countries are taking swift actions to prevent further spread of the virus. World Health Organization (WHO) said it's too early to declare an international public health emergency albeit called for every country should be prepared to deal with cases of the virus. No additional restrictions on travel and trade by WHO were made.

Some soothing returned on the markets ahead of the US market opening with the VIX index in the US at rather comfortable values of 12.8, a level where risks are considered appropriate. Nikkei suspended its decline closing at 23,827.18, or 0.13% up.

If countries will succeed in preventing virus to spread any further it would mitigate the risk and restore investors' appetite for exposure. That will support emerging markets.

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