Emerging markets on edge as virus spreads from China

Bloomberg

The rapid spread of a deadly virus from China will be top of emerging-market investors’ minds as they ponder its impact on the global economy.
Concern that the outbreak will develop into something akin to the Sars pandemic of 2003 halted a seven-week rally in developing-nation stocks, currencies and bonds in the five days through Friday. The yuan underperformed emerging peers last week, while China’s main stock index, the Shanghai Composite, had the worst end to a Lunar New Year in its three-decade history. Global infections have exceeded 2,000 and deaths in China climbed to at least 56.
“The Wuhan coronavirus outbreak has the potential to whipsaw Chinese equities and, indeed, all global risk assets,” said Seema Shah, chief strategist at Principal Global Investors in London. “With valuations elevated, asset classes are already vulnerable to shifts in sentiment, and memories of the meaningful economic impact of Sars has the potential to play havoc with market confidence.”
As traders weigh the virus’s impact on Chinese businesses and consumption, the non-manufacturing reading of the nation’s purchasing managers’ index may offer early signs of its effects on the service sector. The phase-one trade deal with the US this month, combined with recovering global demand, had improved the outlook for Chinese factories and exporters in 2020. Trading flows may be below average with Chinese markets shut for the Lunar New Year until Friday and holidays across Asia.
Contagion fears aside, emerging-market investors will be watching interest-rate decisions in the US, Kenya, Angola, Hungary, Pakistan, Chile, Sri Lanka, Ukraine and Ghana this week.
Mideast stock markets fall
Most Middle Eastern equity gauges dropped at the start of the trading week, following losses in global markets on Friday as the coronavirus emanating from China spread.
Saudi Arabian stocks fell the most among Gulf peers. Energy giant Aramco traded at its lowest level on a closing basis since its listing in Riyadh during the session but pared some of the losses at close. The world’s most profitable company dropped 0.4% to 34.30 riyals.
“There might be more to this downward trend” globally, Ali Malik, an investment adviser at Bank of Singapore Ltd., said in a Bloomberg TV interview on Sunday. But past viral outbreaks have shown that “as soon as the new instances stop getting reported, we see a bounce back,” he said.