HH Coronavirus: A Black Swan Event For Global Equity Markets

On January 30, 2020, the International Health Regulations Emergency Committee of the World Health Organization declared the outbreak of the Novel Coronavirus (COVID-19) a “public health emergency of international concern”. As we write, almost 81,000 people in China have been infected with the virus, with over 30,000 cases elsewhere.

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The novel coronavirus: A black swan event for global equity markets

Market implications of the Coronavirus

In addition to the humanitarian toll, which has been immense, the Coronavirus outbreak has had significant market implications for emerging markets and beyond. In January, emerging equity markets reversed 2019’s year-end rally to close the month lower despite positive momentum from the US and China signing their “phase one” trade agreement. The sell-off, which saw the MSCI Emerging Markets TR Net fall nearly 5%, was predominantly driven by Asian markets, with the outbreak of the virus triggering substantial shifts during the month. Although the fallout was largely focused on Chinese and Asian markets, the emerging markets in Europe also registered negative performances in January, with Greece particularly weak. While most sectors had a disappointing month, Software and Health Care stocks delivered positive returns. The uncertainty also interrupted the strong performance of higher beta growth stocks.

Moving into February, global equity markets fell sharply given the increasing number of reported COVID-19 cases in mainland China and some developed markets. The outbreak has created heightened market volatility, particularly at the end of February when markets suffered their worst week since the global financial crisis.

Concerns over growth continued to weigh on the global economic outlook and the oil price experienced another sharp drop during the month. Emerging equity markets also underperformed, but held up relatively well compared to their developed market counterparts, partially due to the downturn they had already experienced at the end of January.

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