Economics & Markets

How will the coronavirus outbreak play out for global markets?

By Diana Mousina
Economist - Investment Strategy & Dynamic Markets Sydney Australia

Although history tells us that health emergencies, such as the current coronavirus epidemic in China, are a continuing fact of life, their timing can be extremely difficult to predict. This irregularity, combined with the potential for profound market impacts, makes health emergencies a classic “Black Swan” event.

Since the new strain of coronavirus broke out in late December 31 in Wuhan, China, the severity of the epidemic has sent waves of uncertainty through global markets and it is unlikely we have seen the worst of it. From prior experience, we know that markets are unlikely to begin to recover from an health emergency such as this until the number of diagnosed cases reaches a peak and the full magnitude of the situation can be realised.

Given that current reports show than new cases are still increasing, we’ll have to wait for quarantine measures in China and the rest of the world to take hold before markets can be confident that calamity has passed.

Once this point is reached, it is estimated the Chinese economy will take a hit of about 2-3% over the March quarter, which would be followed by a rebound in the following quarter but it would still weaken annual growth. It’s anticipated the People's Bank of China and the Chinese Government will introduce stimulus measures in response, but until then the economy must brace for a hard knock for now.

Although the new coronavirus outbreak will provide some disruption in the short term, equity markets are still expected to return approximately 9-10% over 2020. That represents a slightly lower figure than for the previous twelve months, however the bottom line is that the outlook for markets and the global economy in general remains positive.

This is largely thanks to a recovery in the manufacturing sector driving stronger economic conditions in Europe and the expectation that the US will continue to perform strongly. So although the coronavirus emergency is putting a dent in prospects for the short term, the outlook for the rest of the year is much brighter.

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Diana Mousina, Senior Economist
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While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455)  (AMP Capital) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.

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