Investors are growing increasingly concerned about the rise in coronavirus cases outside China, threatening gains in riskier assets that propelled the S&P 500 Index to an all-time high this week.
A spike in confirmed infections in South Korea and two more deaths in Japan jolted markets yesterday, sending the won and Singapore dollar down as much as 1%. Asian shares slid to a two-week low, and some money managers said they’re bracing for further losses.
“The transmission rate outside of China is increasing and to us that is concerning,” said Ross Cameron, the head of the Japan office at Northcape Capital Ltd. “The transmission rate in Japan and South Korea has picked up. The transmission rate in Singapore also suggests that the virus spread may continue even when it’s summer.”
While China reported a sharp decline in new infections, the country’s shifting reporting guidelines have raised doubts about the reliability of data from the centre of the outbreak. South Korea reported its first death from the virus on Thursday while cases surged to 104, and infections in Japan shot up in the past week. In Singapore, more than 80 people have contracted the virus.
Cameron questioned why the market reaction to the virus spreading has been so muted.
“Our sense is the way the market is trading, it’s probably too bullish,” he said in a phone interview from Tokyo. “We are definitely not out of the woods. We think people were too optimistic early on.”
Hugh Young, the veteran money manager at Aberdeen Standard Investments, said he’s watching the virus situation in Singapore for a reliable read on its spread.
“If anyone can handle it and can contain it and is honest about it, I would say that is probably Singapore,” Young said in an interview. “So if we see how Singapore develops, that might – maybe not – that might be a lead indicator.”
But even though new cases in Singapore have been slowing, he’s reluctant to interpret the data too quickly.
“Maybe it goes on more, becomes more widespread outside the immediate region,” he said. “As far as an indication that it’s coming to an end, I think just wait and see, I’m afraid. We’re just watching and seeing along with everyone else.”
For Young, one reason markets have been resilient is support from China. But he also points to another factor. The experience of Sars in 2003, and how its impact didn’t last long in markets, is probably making people believe the same thing will happen this time, he said.
“The trouble is we’re all looking at Sars and saying, well, it was short-lived,” he said. “And then maybe the issue is we’re all rather expecting it to be a repeat experience.”
Not everyone is so cautious about the situation. Nader Naeimi, the head of dynamic markets at AMP Capital Investors Ltd in Sydney, says the worst of the outbreak in China is past, and he’s putting his fund’s money behind that assumption.
Naeimi has been tracking the rate of change of new cases in the country every day and also the rate of deaths. What he’s seeing, along with China’s determination to prop up the economy in response to the crisis, gave him the confidence to pile back into risk assets just weeks after he sold them off.
“We have started to see a peak in progression,” Naeimi said in a phone interview from Sydney earlier this week. “We started to short fear, which means we are short gold, long copper,” he said. We’ve “gone full-on back to risk-on in commodities, in global industrials, basically all areas of markets where there is exposure to economic growth.”
But for Northcape’s Cameron, the most important data points for investors are now outside the mainland.
“The key one we are looking at is the transmission rate outside of China,” he said. “The key question is whether this is a regional epidemic or will it become a global pandemic.”
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