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Markets expected to fall further as coronavirus hits China’s economy

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Via Yahoo Finance

World stock markets are expected to fall further next week after the first surveys of China’s economic health since the coronavirus outbreak showed factory output has plunged and the country’s service sectors have contracted.

Illustrating how the virus could wreck the economic forecasts of other affected countries, the world’s second largest economy reported that manufacturing production levels dropped to record lows in February.

Stock markets tumbled last week as the virus spread to four continents and UN health officials upgraded the level of threat from the virus to “very high”.

It is likely the fresh data, which measures the economic impact of Beijing’s efforts to clamp down on the virus, will further spook investors who sent global markets tumbling 11% last week in the worst seven-day period for stocks since the 2008 financial crash.

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With factories forced to remain closed after the traditional lunar new year holiday shutdown, China’s official Purchasing Managers’ Index (PMI), a widely watched measure of economic activity, fell further in February than at any time in the last 12 years, China’s National Bureau of Statistics said.

The bureau found a significant collapse in domestic and export orders and a contraction of the country’s burgeoning service sector.

Similar surveys expected next month covering Japan and South Korea, both seriously affected by the coronavirus outbreak, could prolong the rout on global stock markets, analysts said.

The outbreak has already disrupted supplies to factories in Europe, where companies have struggled to access vital components sourced from east Asia.

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Investors expect to find out in the next few days whether the outbreak is accelerating in the US, the world’s biggest economy, and how far central banks and governments are prepared to go to deal with an epidemic.

“Right now the market is saying that this is unbounded. We don’t know what the limits are and we don’t know where it’s going to peak,” said Graham Tanaka, the chief investment officer at New York-based Tanaka Capital.

Stock markets globally lost about $5tn (£3.9tn) of value last week, as measured by the MSCI all-country index.

Last weekend China’s president, Xi Jinping, told local officials that low-risk areas should “resume full production and normal life”.

The government reported that larger factories reached 85.6% of their capacity by the middle of last week.

Analysts at ING said: “This isn’t as positive as it sounds. Even if China‘s factory production can recover in March, it will still face the risk of a low level of export orders. This is because the supply chain will continue to be broken, this time in South Korea, Japan, Europe, and the US, where Covid-19 has begun to spread.”

Unofficial reports show that factories outside Hubei province, where the virus started, could be working at no more than 75% of their capacity and many nearer 25% to 50% while millions of workers remain trapped in their home province, unable to travel back to their place of work.

Hundreds of corporate events have been cancelled or postponed in recent days in response to calls for a clampdown on large gatherings

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On Saturday the organisers of the Mipim property fair, which was due to take place in Cannes, France, from 10 to 13 March, was postponed until 2-5 June. Organiser Reed Midem said it was postponing the event, which is attended by thousands of architects and property professionals, due to “growing concerns related to the coronavirus”.

The French government has banned public gatherings with more than 5,000 people as France reported 16 new cases of the virus. “All public gatherings of more than 5,000 people in a confined space are temporarily banned across France,” said the country’s health minister, Olivier Véran.

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