A $1.5 Trillion Wipeout and More: Virus Fallout Across Assets

(Bloomberg) -- The ink was barely dry on Wall Street’s 2020 outlooks when the first case surfaced in Wuhan. But what began as a single patient suffering pneumonia-like symptoms on Dec. 12 has morphed into a deadly virus that’s sent global markets reeling.

A quick tally shows the coronavirus has wiped $1.5 trillion off the value of world stock markets since Jan. 20, when a slide in Hong Kong shares kicked off concerns among traders. Yet with Chinese and Hong Kong exchanges shut for an extended holiday, that’s a lowball figure.

As Treasuries drift and U.S. stock-futures gain in early Tuesday trading, the epidemic’s toll looms large across assets. Raw materials have been hit hardest, with the Bloomberg Commodity Spot Index slumping 4.5%. Meanwhile havens have rallied as investors seek safety. The Bloomberg Barclays Global Aggregate Treasuries Total Return Index is up 1.3%, while the Bloomberg Dollar Spot Index has strengthened 0.5%.

“Looking at the impact of SARS in 2002-2003, U.S. equity markets fell by about 10% before recovering,” said Peter Kisler, portfolio manager at North Asset Management, who’s taken some profits on emerging market and high-yield positions. “We could easily see a similar move today, as almost all assets are trading at very expensive levels.”

Here’s a look at how the major global asset classes have reacted so far.

Stocks

With the virus originating inside its borders, China’s stocks have borne the brunt of its spread. Though local markets remain shuttered until Feb. 3 for an extended Lunar New Year break, futures on the FTSE China A50 Index have fallen over 10% since Jan. 20. Equities across the world have slumped, with Asia the worst-performing region while European shares have emerged relatively unscathed.

Bonds

Investors have been rushing to the comfort of U.S. Treasuries with year-to-date declines in 10-year yields now sitting at over 30 basis points. The global benchmark yield has fallen out of the uptrend it was in since September, with a growing number of strategists targeting 1.5%. The move has reverberated across the globe, with rates on bunds at the lowest since October and Australian equivalents back below 1%. The market value of negative-yielding debt jumped on Monday by $860 billion, the most in a day since Bloomberg began tracking the data regularly three years ago.

Commodities

Traders are dumping oil and industrial metals on fears the virus will crimp worldwide demand. WTI crude has fallen around 9% since Jan. 20, putting it on course for the biggest monthly decline since May. Copper has slumped and iron ore tumbled over concerns that industrial activity and construction work won’t pick up after the Chinese holiday. But gold is showcasing its long-standing reputation as a haven in troubled times, trading near the highest close in more than six years.

Currencies

The historic calm in currency markets snapped as the outbreak gained traction, with the offshore yuan sliding to its weakest level this year. That pushed dollar-yuan above both its 50-day and 200-day moving averages, with traders watching closely as the pair nears 7, an important psychological level. The Japanese yen, a traditional oasis during market turmoil, touched the strongest in almost three weeks. Other havens rallied, with the Swiss franc headed for its best month versus the euro since May.

Credit

Blue-chip American companies eschewed fresh borrowing Monday on the heels of risk aversion and signs that the spreading virus will undercut global growth. Still, risk premiums across the world remain low, anchored by loose monetary policy, benign default rates and continued economic output. The cost to insure corporate bonds in Asia edged modestly higher to mid-December levels, while a risk measure for Europe’s junk-rated debt climbed to levels notched early last month. Credit default premiums for high-yield companies in North America jumped Monday at the fastest pace in four months.

--With assistance from Sid Verma and Anchalee Worrachate.

To contact the reporters on this story: Cormac Mullen in Tokyo at cmullen9@bloomberg.net;Yakob Peterseil in London at ypeterseil@bloomberg.net

To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, Sid Verma, Cecile Gutscher

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