Coronavirus spooks global markets

Global financial markets saw some of the sharpest falls in years on Monday after a rise in coronavirus cases renewed worries about economic slowdown. It has led to fears of a global recession possibly on the scale of the 2008 financial meltdown.

It had a huge impact on Wall Street which had a ripple effect on other markets. The Dow Jones Industrial Average, S&P 500, and Nasdaq all ended the day down by more than three percent. The Dow tumbled by 3.5 percent, more than 1,000 points, erasing its gains for the year.

There have been concerns about the coronavirus for months but worries about it approaching pandemic status have been building in recent days. At press time there were more than 80,000 cases of Covid-19 (the disease caused by the coronavirus strain) in around 30 countries with hundreds of deaths and the numbers are increasing daily. They posted their sharpest daily declines since 2018.

While most cases have been found in China, countries everywhere have reported surges in recent days, including Italy, Iran, and South Korea. Italy quarantined multiple towns and cancelled the Venice Carnival and several football events. And an outbreak on a cruise ship outside Japan has increased concerns, too.

Although the Caribbean stock markets have dipped significantly, the cruise ship business has been affected the most. Major cruise operators like Royal Caribbean Cruises, Carnival Corporation and Norwegian Cruise Line Holdings declined at least nine percent.

China constitutes 7.6 percent of the global cruise industry and there has been mass cancellation of voyages in other parts of Asia.

While cruise business from China and Asia fell significantly, bookings for the broader business outside Asia has also softened recently thanks to travel restrictions to contain the spread of the contagion.

The World Health Organisation said it believes there’s still time to contain the virus and that its epidemic peak may be declining in China, but other experts believe the virus has already spread widely and anticipate epidemics around the world. Either way, the threat is causing ripples across global stock markets and economies.

The UK's FTSE 100 share index closed 3.3 percent lower, the sharpest drop since January 2016.

In Italy, which has seen Europe's worst outbreak of the virus, Milan's stock market plunged nearly six percent.

In contrast, the price of gold, which is considered less risky, hit its highest level in seven years at one point.

About 77,000 people in China, where the virus emerged last year, have been infected and nearly 2,600 have died.

More than 2,000 cases have been confirmed globally and there have been more than 20 deaths. Italy reported three more deaths on Monday, raising the total there to six.

"There has been so much complacency in recent weeks from investors, despite clear signs that China's economy is facing a large hit and that supply chains around the world were being disrupted," said Russ Mould, investment director at AJ Bell.

"Markets initially wobbled in January, but had quickly bounced back, implying that investors didn't see the coronavirus as a serious threat to corporate earnings. They may now be reappraising the situation."

Firms such as Nike, Apple and Walt Disney, which do major business in China and rely on it to make goods, were some of the hardest hit, with shares down more than 4 percent. UnitedHealth Group, Carnival Group, and American Airlines were among the stocks dragging markets down, all shedding at least 4 percent too.

Put another way, the world’s 500 richest people lost a combined $139 billion Monday. It’s the biggest wealth drop for the group since the Bloomberg Billionaires Index began tracking that figure in October 2016.

Bernard Arnault, chairman of luxury-goods maker LVMH, and Amazon founder Jeff Bezos led the declines, with each losing more than $4.8 billion. Amancio Ortega, chief executive officer of Zara parent Inditex SA, tumbled $4 billion, and the fortunes of everyone else in the top 10 slid by at least $2.3 billion.

Travel companies also continued to suffer. In the UK, the biggest faller in the FTSE 100 was EasyJet, which sank 16.7 percent, while Tui and British Airways owner IAG were both down by more than 9 percent at the close.

Why is the market so spooked? Part of the answer is the ballooning number of confirmed cases in China and elsewhere. Investors worry this could mean a prolonged economic slowdown around the world.

Tech juggernaut Apple has already warned of a shortage of iPhones and other US companies are also starting to worry. If the impact is as serious as some investors suspect, it could derail the longest economic expansion in America's history.

That means there are political implications too. US President Donald Trump has made a roaring economy a central part of his re-election bid. Any wobbles could make his case for another four years more challenging.

The market moves come as companies continue to warn about the effect of the coronavirus on their supply chains and overall financial health.

Associated British Foods, which owns clothing retailer Primark, warned that there could be shortages of some lines if delays in factory production in China were prolonged because of virus-related shutdowns.

In China itself, officials have said most small businesses have yet to reopen after the authorities extended the Lunar New Year holiday to contain the spread of the virus.

Only about three out of 10 small and medium-sized enterprises were back to work, while transport problems were preventing workers from travelling and disrupting shipments of raw materials, said industry ministry spokesman Tian Yulong.

On a positive note, historically, stock markets have made full recoveries within six months in similar cases of respiratory outbreaks, albeit with less global impact. Predictions are that coronavirus will become a pandemic before it becomes under control.