Macroscope | Coronavirus: Markets looking at the silver lining miss the dark cloud looming over Asia’s economies

The consensus view in markets is that the virus is containable, with the collapse in economic activity likely to be short-lived. But emerging markets are more exposed to China than ever before, and their faith in the effectiveness of stimulus may not be repaid

3-MIN READ3-MIN

Published: 5:00pm, 20 Feb 2020Updated: 10:22pm, 20 Feb 2020

A month has passed since the outbreak of the deadly coronavirus began to move financial markets.

Since January 24, when a rally in stocks was brought to a halt by news that the Sars-like virus had spread from China to other countries, emerging markets have suffered more than other asset classes. While the benchmark S&P 500 equity index has risen a further 2.7 per cent to a fresh high, the MSCI Emerging Markets Index has fallen 1.7 per cent. A separate MSCI index for emerging market currencies is down more than 1 per cent.

Yet, since the beginning of February, sentiment has improved markedly. Last week, emerging market bond and equity funds attracted net inflows of nearly US$4 billion, taking the cumulative inflows this year to US$17.4 billion, according to data from JP Morgan.

Investors’ willingness to continue pouring money into emerging markets at a time when the coronavirus outbreak has brought large parts of the world’s second-largest economy to a standstill, and is disrupting global supply chains, is striking.

Not only does it show the extent to which traders have become conditioned to treat bouts of turmoil as buying opportunities, mainly because of continued support from central banks, it is also a sign that investors do not perceive the economic fallout of the epidemic as a big enough shock, within China and around the world, to derail growth and severely undermine sentiment.

.css-1m2rp1p{color:#34b8b5;}Macroscope | Coronavirus: Markets looking at the silver lining miss the dark cloud looming over Asia’s economies

Macroscope | Coronavirus: Markets looking at the silver lining miss the dark cloud looming over Asia’s economies