What’s Going On Here?Investors ditched their stocks on Monday, as the deadly coronavirus continued to disrupt the Chinese – and global – economy. What Does This Mean?Chinese authorities confirmed on Monday that the virus has killed 80 people and infected almost 3,000 more. And they warned its spread could accelerate still, what with the millions of people traveling for Lunar New Year celebrations – trips that've also taken the virus abroad.
To keep the situation from getting worse, the government is extending the New Year holiday. Many firms won’t reopen until the end of next week, while shops, restaurants, and theme parks – yes, even Disneyland – have closed their doors. Why Should I Care?For markets: Bad for business.
It’s hard to know how much financial harm the outbreak could do, but the 2003 SARS epidemic ended up costing the global economy about $50 billion. China-reliant luxury goods companies are particularly at risk, which might be why Burberry and Hermès’s shares slipped 5% on Monday. Restaurants could be hit hard too, says investment bank Goldman Sachs – as could manufacturers like Honda and Groupe PSA (maker of Peugeot cars). They’ve had to suspend operations, which will impact their supply chain even when things get back to normal. Stocks across multiple industries could suffer as a result, though Goldman points out that after past epidemics, shares rebounded within four months (tweet this).
The bigger picture: Volatile reaction.
Investors – afraid the virus might impact China’s economic growth – have started to panic. A measure of the US stock market’s volatility shot up almost 30% on Monday, as investors sold off their stocks. The virus isn’t entirely responsible: tensions between America and Iran also rose over the weekend after an attack on the US embassy in Iraq. That would normally lead to a spike in oil prices, but seeing as the virus is reducing travel – and therefore oil demand – oil producers are instead trying to keep the price from falling. | 