The week started with heavy losses in Asian markets as the number of coronavirus cases outside China surged, spurring worries that it could
become a global pandemic. At least ten cities in Northern Italy are quarantined and the Venice Carnival was closed.
Stocks in Korea
(-3.87%) recorded the heaviest losses, the ASX 200 (-2.25%) tanked as WTI crude slid more than 2%. Hang Seng (-1.70%) and Shanghai’s
Composite (-0.28%) edged lower. Japan was closed for bank holiday.
US and European equity futures were offered as well, on fears that
the spread of coronavirus will hamper growth prospects worldwide. If the market mood changes so fast, it is because no one can really tell the
real impact of the virus on economies. But it is certain that the disruption in economic activity will translate into lower company earnings
and softer growth figures at least during the first half of the year. Time, and data, will show how bad the economies have been impacted.
With
all this in hand, the actual historical high levels seem rather exaggerated for the US stock markets. There is a risk of sharp downside
correction, yet we do not rule out the possibility that prospects for more monetary support from the central banks would sustain the US stock
rally after a potential downside shock, in which case, only investors with very solid nerves would be rewarded.
FTSE (-1.59%) and Euro
Stoxx (-2.06%) futures point at a deeply negative start. The FTSE will likely test the 7300p mark on the downside.
By Ipek Ozkardeskaya
