Stock Markets See US$5 Trillion Wiped Away As Coronavirus Fears Take Hold

LONDON (Reuters) Coronavirus panic sent world share markets skidding again on Friday, compounding their worst crash since the 2008 global financial crisis and pushing the week’s wipeout in value terms to US$5 trillion.

The rout showed no signs of slowing as Europe’s main markets slumped 3 per cent  to 5 per cent and the ongoing dive for safety sent yields on U.S. government bonds, seen as probably the securest asset in the world, to fresh record lows.

Hopes that the epidemic that started in China would be over in months and that economic activity would quickly return to normal have been shattered this week as the number of international cases spiraled.

Bets are now that the Federal Reserve will cut U.S. interest rates as soon as next month and other major central banks will follow to try and nurse economies through the troubles and stave off a global recession.

“Investors are trying to price in the worst case scenario and the biggest risk is what happens now in the United States and other major countries outside of Asia,” said SEI Investments Head of Asian Equities John Lau.

“These are highly uncertainty times, no one really knows the answer and the markets are really panicking.”

Disruptions to international travel and supply chains, school closures and cancellations of major events have all blackened the outlook for a world economy that was already struggling with the U.S.-China trade war fallout.

MSCI’s all country world index, which tracks almost 50 countries, was down more than 1 per cent ahead of U.S. trading and almost 10 per cent for the week the worst since October 2008.

Wall Street shares plunged 4.4 per cent on Thursday alone, their largest fall since August 2011. Futures pointed to a modest 1 per cent drop later, but the S&P 500 has lost 12 per cent since hitting a record high just nine days ago, putting it in so-called correction territory.

Europe’s airlines and travel stocks have plunged 18 per cent in their worst week since the 2001 9/11 attacks in the United States.

Pandemic warning

In Asia, MSCI’s regional index excluding Japan shed 2.6 per cent. Japan’s Nikkei slumped 3.7 per cent on rising fears the Olympics planned in July-August may be called off due to the coronavirus.

“The coronavirus now looks like a pandemic. Markets can cope even if there is big risk as long as we can see the end of the tunnel,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

“But at the moment, no one can tell how long this will last and how severe it will get.”

World Health Organization Director General Tedros Adhanom Ghebreyesus said the virus could become a pandemic as the outbreak spreads to major developed economies such as Germany and France.

 About 10 countries have reported their first virus cases over the past 24 hours, including Nigeria, the biggest economy in Africa.

Oil prices languished at their lowest in more than a year, having plunged 12 per cent this week the worst since 2016 while all the major industrial metals have dropped between 3 per cent and 6 per cent.

The appeal of guaranteed income sent high-grade bonds rallying. U.S. yields which move inversely to the price plunged with benchmark 10-year note yields hitting a record low of 1.1550 per cent in frenzied European trading. It last stood at 1.1847 per cent.

That is well below the three-month bill yield of 1.43 per cent, deepening the so-called inversion of the yield curve. Historically an inverted yield curve is one of the most reliable leading indicators of a U.S. recession.

(Additional reporting by Hideyuki Sano in Tokyo; Editing by Kirsten Donovan)