The real test for markets on the new coronavirus outbreak in China is yet to come

Fears have receded a little today but it may still come back soon enough


The new coronavirus outbreak in China could not have come at a worse time. It is starting to become more widespread just as the Chinese New Year holidays are about to kick start – starting from 24 January to 30 January.
This is a period of mass travel across China and many citizens will be heading back to their hometowns (domestic and abroad) to celebrate the festive occasion with their families. Not only that, many will also use this break period to travel overseas.
As such, don’t be too startled if we do see an uptick in the number of cases of the new coronavirus across China and potentially in other countries as well.
The real test for markets will be trying to determine if the situation is still going to get worse or if the virus is largely contained and things will get better.
The way I see it is that if the virus is not seen too widespread despite extensive travel activity and human contact during this period, it will be viewed as nothing more than a blip to markets – as compared to the SARS virus back in 2002-03.
However, if the number of reported cases starts to increase rather drastically, the fear is that it could have potential spillover implications to the Chinese economy – the services sector especially, as we have seen with the SARS virus almost two decades ago.
With the Chinese economy having a much tighter stranglehold over the global economy in today’s environment, bad news for China would also have a negative impact on emerging markets and other economies around the world too.
As such, that would result in a more serious setback for risk until the situation feels more in control and blows over in due time. So, while the fear has receded a little for now, it doesn’t mean that we have completely moved past this issue just yet.