Equity markets: Chinese risk becomes global risk
As long as the coronavirus epidemic seemed largely limited to China, equity markets in other regions - after an initial shock reaction in January - continued their rise in February. In fact, on 19 February the S&P500 and Stoxx600 registered all-time highs. Nevertheless, during the last week of the month, it was revealed that more infections had occurred outside China, including in Europe, where an outbreak of the virus was detected in northern Italy. Investors started to fear similar containment measures as in China (quarantine of cities, closure of companies, cancellation of activities, etc.) and the possible impact this would have on industry and consumption. Therefore, during that last week of February, global equity markets experienced their worst week since the financial crisis, with drops exceeding 10%. No sector has been spared, which illustrates investors’ overall concern. The biggest negative contributors were tourism and leisure, energy and cyclical equities. Geographically, Asian emerging equities recently held up better after having fallen farther behind in January. The Japanese stock market nevertheless lost more ground than other Asian markets. After a disappointing fourth quarter of 2019 as a result of the VAT rate increase in October, the Japanese economy is likely to fall into recession (2 consecutive quarters of negative economic growth) notably due to the emergence of the coronavirus. The containment measures adopted at the end of February could cause further damage to the economy.