Coronavirus: stay alert for further market volatility

07/02/2020
Coronavirus stay alert for further market volatility

Summary

We expect this outbreak to hurt China’s economy in the short term, but we are still positive about the country’s long-term prospects. Throughout Asia, supply-chain troubles will likely have a broadly negative effect. But we don’t expect the global economy to be hit as hard as China’s: central-bank policies, corporate earnings and stabilizing economic fundamentals still seem supportive of global risk assets.

Key takeaways

  • While the recent drag on China’s economic growth has been mostly caused by the government’s efforts to contain the Wuhan coronavirus, those are necessary steps to get the situation under control
  • China’s central bank has already taken steps to bolster its economy, and we expect further stimulus measures to be announced
  • Long term, we think investors should still be optimistic about China’s potential, although we expect China’s insurance sector, airports and leisure industry to suffer in the coming months
  • Comparisons between this new coronavirus and the SARS epidemic of 2002-2003 may be unhelpful because the world – and China’s role in it – are very different now
  • We expect this virus to affect the global economy less than China’s – but supply-chain problems will likely put pressure on economic fundamentals, which are fragile but have been improving

Coronavirus: what’s at stake for investors?

The outbreak of the Wuhan coronavirus is the first “black swan” event of 2020. It has made investors exceedingly nervous given China’s history of infectious-disease outbreaks and fears of the virus spreading quickly around the globe.

These concerns are understandable, given that hundreds of deaths have already reported and researchers are just beginning to learn how this virus works. The steps China has taken in response – including quarantining tens of millions of people and extending the closure of its stock exchanges beyond the Lunar New Year holiday – have already caused economic damage and a large one-day drop in China’s equity market. (However, global markets have rallied after an initial sell-off on hopes that the virus transmission may slow in the coming weeks and new treatments could prove effective.)

Overall, we still have a positive long-term view of China, particularly if the outbreak is brought under control in the coming months. This will take herculean efforts that will undoubtedly come at a huge cost, but we think the Chinese government has the will and means to implement them. In fact, the People’s Bank of China already injected huge amounts of liquidity to counter the impact of this new outbreak – though we don’t expect this stimulus to improve economic conditions substantially until the virus has been contained.

How could this outbreak affect economic growth?

Global growth will likely be affected by a China slowdown

Although some market-watchers have compared the potential economic impact of this new coronavirus and the 2002-2003 SARS outbreak, there are important differences to consider. We don’t yet know the true nature of this new disease, and China has grown much bigger and more economically important since SARS. Moreover, we are now late in the global economic cycle, not at the beginning of an upswing (SARS happened when the global economy was already recovering from the burst of the tech bubble) and overall, valuations are generally elevated today vs moderate during SARS times. On the positive side, communications and medical technology has improved drastically since SARS. All these factors make the economic impact of this outbreak exceedingly difficult to predict – but a slowdown in China today will likely hurt global growth more than it did 20 years ago.

China’s GDP was already falling and will likely drop further

Even before this disease began to spread, China’s growth was slowing somewhat as the government worked to lower its economy’s overall debt levels and “rebalance” towards a consumption-driven model. We think the Wuhan coronavirus has the potential to depress China’s 2020 GDP growth by one percentage point, moving it closer to 5% – though this would still be higher than the growth seen in much of the developed world.

Asia’s optimism over trade may subside

Recently, other Asian economies appeared ready to bounce back on optimism surrounding a US-China trade deal. But Asian investors have turned cautious on the realisation that the spread of the Wuhan coronavirus and accompanying quarantines could be much more disruptive to global supply chains than trade tariffs. On the positive side, central banks in Asia still have room to supply monetary stimulus to attempt to jump-start economic growth.

What are the implications for investors?

  • In China, expect to see more setbacks in key sectors that have already been hurt by the outbreak – including tourism, airlines, gaming, and even oil and other commodities.
  • In the US, risks are more sector-specific – oil and energy, travel and tourism, and some retail/luxury brands could slide lower. But if the virus is contained in the US, we believe investors will once again focus on the fundamental factors that have been moving markets – including corporate earnings, Fed monetary policy, broader economic data and US politics.
  • In Europe, we had started to see tentative signs of stabilisation in manufacturing and trade. But the Wuhan coronavirus may derail this modest recovery in the short term, since European economies are large trading partners of China and Asia.
  • Globally, until this epidemic is brought under control, multinational corporations will worry about lost revenues, lower trade, and potential store closures in China. Supply chains globally will likely feel an impact if the flow of goods slows or people move around less – whether from quarantines or general virus fears.
  • Overall, barring any lasting economic shocks from the epidemic, we continue to see a supportive backdrop for risk assets, in the US and globally, with an environment of generally low rates, low inflation and stable growth. But more equity-market volatility should be expected, particularly after a stellar year in 2019. Keep in mind that equity markets have typically experienced between one and three corrections of 5%-10% per year. The Wuhan coronavirus could still spark the first correction of 2020.

Previous outbreaks caused only temporary setbacks for US stocks
S&P 500 Index (1930-2020)

Exhibit 1: China has one-third of key 5G patents

Source: FactSet. Data as at 3 Feb 2020. Past performance is no guarantee of future results.

> download

Coronavirus spread forces investors to think again

28/02/2020
Coronavirus spread forces investors to think again

Summary

As the humanitarian costs of the coronavirus continue to rise, outbreaks beyond China are challenging the previous consensus view that the impact on markets could be relatively contained. Global stock markets are down, and negative sentiment may become a self-fulfilling prophecy, adding to the need for caution and an active approach.

Key takeaways

  • China has acted to bring the coronavirus under control, but global outbreaks will prolong uncertainty and stock markets across the world have been impacted
  • While the outbreak is impacting demand – both in China and globally – there will also be global supply implications, particularly for the automotive and technology sectors
  • We expect the dominant trend to be a “flight to safety” into the US dollar and US assets
  • This crisis underscores the vulnerable outlook for global risk assets following a strong end to 2019, but long-term investors will want to sit tight and monitor how events play out

Allianz Global Investors

You are leaving this website and being re-directed to the below website outside Singapore. This does not imply any approval or endorsement of the information by Allianz Global Investors Singapore Limited contained in the redirected website nor does Allianz Global Investors Singapore Limited accept any responsibility or liability in connection with this hyperlink and the information contained herein. Please keep in mind that the redirected website may contains funds and strategies not authorized for offering to the public of Singapore. Besides, please also take note on the redirected website’s terms and conditions, privacy and security policies, or other legal information. By clicking “Continue”, you confirm you acknowledge the details mentioned above and would like to continue accessing the redirected website. Please click “Stay here” if you have any concerns.

Welcome to Allianz Global Investors

Select your role
  • Individual Investor
  • Intermediaries
  • Other Investors
  • It contains legal and regulatory notices relevant to the information contained on this website. By accessing this website, you agree to be bound by the following terms and conditions. Please discontinue your access to this website immediately if you do not accept any of these terms or conditions.


    Investments

    The content of this website is for informational purposes only and does not have any regard to the specific investment objectives, financial situation or particular needs of any particular person.

    Advice should be sought from a financial adviser regarding the suitability of any fund before purchasing units in the fund. In the event that you choose not to seek advice from a financial adviser, you should consider whether the fund is suitable for you. Prices of funds and income from them may fall or rise and cannot be guaranteed.

    Past performance of any fund or manager/ sub-manager of the fund are not necessarily indicative of future performance.

    Prospectuses for funds registered with the Monetary Authority of Singapore under the Authorised Scheme and Recognised Scheme are available, and may be obtained from Allianz Global Investors Singapore Limited or its appointed distributors. Investors should read the prospectuses before investing in such funds.


    No Reliance

    Although Allianz Global Investors Singapore Limited has taken all reasonable care that the information contained within the website is accurate at the time of publication, no representation or warranty (including liability towards third parties), expressed or implied, is made as to its accuracy, reliability or completeness by Allianz Global Investors Singapore Limited or its contractual partners.

    Opinions and any other contents on this website are provided by Allianz Global Investors Singapore Limited for personal use and informational purposes only and are subject to change without notice.

    Nothing contained in the website constitutes investment, legal, tax or other advice nor is to be relied on in making an investment or other decision. You should obtain relevant and specific professional advice before making any investment decision.


    No Warranty

    The information and opinions contained on the website are provided without any warranty of any kind, either expressed or implied, to the fullest extent pursuant to applicable law. Allianz Global Investors Singapore Limited further assumes no responsibility for, and makes no warranties that, functions contained on the website will be uninterrupted or error-free, that defects will be corrected, or that the website or the servers that make it available will be free of viruses or other harmful components.


    Liability Waiver

    Under no circumstances, including , but not limited to, negligence, shall Allianz Global Investors Singapore Limited be liable for any special or consequential damages that result from the access or use of, or the inability to access or use, the materials at the website.


    Linked Sites

    Allianz Global Investors Singapore Limited has not reviewed any websites which link to this website, and is not responsible for the contents of off-site pages linked to from this website or any other websites linked to this website. Following links to any off-site pages or other websites shall be entirely at your own risk.

    The only exception to the above is that Allianz Global Investors Singapore Limited will ensure that all our electronic prospectuses comply with the requirements for electronic prospectuses set out in the Guidelines on Offer of Securities made through the Internet issued by the Monetary Authority of Singapore.


    Copyright

    Copyright to this website is owned by Allianz Global Investors Singapore Limited. The copyrights of third parties are reserved. You may download or print a hard copy of individual pages and/or sections of the website, provided that you do not remove any copyright or other proprietary notices. Any downloading or other copying from the website will not transfer title of any software or material to you. You may not reproduce (in whole or part), transmit (by electronic means or otherwise), modify, hyperlink or use for any public or commercial purpose the website without the prior permission of Allianz Global Investors Singapore Limited.

    All trademarks, service marks and logos on this website are the property of Allianz Global Investors Singapore Limited and other third party proprietors where applicable. Nothing on this website shall be construed as granting any license or right to use any image, trademark, service mark or logo, and Allianz Global Investors Singapore Limited will enforce such rights to the full extent of applicable law.


    Money Laundering

    As a result of money laundering and other regulations, additional documentation for identification purposes may be required when you make your investment.


    Governing Law and Jurisdiction

    These Terms and Conditions governing Allianz Global Investors Singapore Limited's website shall be governed by and construed in accordance with the laws of the Republic of Singapore. By accessing this website's online services, you agree that in relation to any legal action or proceedings arising out of or in connection with these said terms and conditions, you hereby irrevocably submit to the jurisdiction of the courts of the Republic of Singapore.

    Approved for issue by Allianz Global Investors Singapore Limited, 79 Robinson Road, #09-03, Singapore 068897. Company Regn. No. 199907169Z.

    You may face minimal or no returns or suffer total loss of their investments if both the guarantor and the note issuer default.

     

Please indicate you have read and understood the Important Notice.