As the coronavirus rocks financial markets worldwide, China is not the safe bet investors hope it is

The Chinese stock market has not fallen as steeply as its peers, the yuan has proved resilient and the domestic bond market has attracted strong inflows

However, it is too early to say whether China will be hit by a second wave of infections, and the strain on global supply chains does not bode well for the country

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Pedestrians ride an escalator near an overpass with an electronic board showing stock information at the Lujiazui financial district in Shanghai on March 17. Photo: Reuters

Published: 1:00am, 27 Mar 2020Updated: 3:01am, 27 Mar 2020

The coronavirus is a fast-moving pathogen. In the space of just a few months, a localised public health issue in China has morphed into a global pandemic that has so far claimed more than 21,000 lives and infected over 468,000 people. China itself now accounts for fewer than 18 per cent of the confirmed cases and fewer than 16 per cent of the fatalities.

In financial markets, Covid-19 has gone from being a non-event in the minds of most investors to the catalyst for a global financial and economic crisis that, over the past two weeks, has looked a lot like the events surrounding the demise of Lehman Brothers in 2008.

Since hitting an all-time high on February 19, the benchmark S&P 500 equity index has plunged 27 per cent, the fastest descent into a bear market on record. Spreads on US high-yield bonds are on the brink of falling into distressed territory, while the dollar index, a gauge of the greenback’s performance against a basket of other currencies, has surged 6.4 per cent since March 9, contributing to a sharp tightening in financial conditions.

Economists have slashed their forecasts for global growth this year. JP Morgan expects the world economy to contract by a shocking 12 per cent this quarter, on a quarter-on-quarter annualised basis, and to continue to shrink, albeit less severely, next quarter, representing one of the sharpest contractions in a century.

While all regions and asset classes have suffered since the disease took hold, China – the country which earlier this year faced a torrent of outrage, domestically and internationally, over its mishandling of the crisis, and whose virus-induced economic collapse was the focal point of market anxiety – has fared significantly better, creating the perception that it has become a safe haven.

There is some evidence to support this view.