Coronavirus: Investors brace as world sharemarkets chilled by virus spread

Wednesday, 26 February 2020

New Zealand's sharemarket has dropped again as the investors continue to show signs of nervousness amid the continuing spread of the coronavirus.

The NZX top 50 index initially fell 1.98 per cent this morning, before recovering slightly and ending the day 1.33 per cent down.

New Zealand trading mirrored drops in Australia, with the ASX down 2.2 per cent at 5pm NZT.

Wall St's main indices plunged three per cent overnight after officials warned the spread of the virus to the United States seemed inevitable.

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The New Zealand sharemarket could suffer again today after a second gloomy night on world sharemarkets.

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As the highly contagious virus becomes more established in the West, the S&P-500 fell almost 3 per cent, following a 3.4 per cent tumble on Monday night, its biggest one-day drop in two years.

Most other European and Asian markets also felt some pain. Germany's DAX and Britain's FTSE 100 declined nearly 2 per cent and Japan's Nikkei 225 index tumbled more than 3.3 per cent.

Stocks in New Zealand and Australian stocks were also hammered. Australia's SPI-200 futures contract closed down 2.24 per cent, extending a similar fall on Monday.

An Italian policeman tests a reveller during Venice's famed carnival. Events in Venice are being shut down in a bid to stop the spread of the novel coronavirus, as the number of cases soars past 133.

Liz Kendall, a senior economist at the ANZ, said the declines were an understandable response to what was now known about the coronavirus.

'The reaction that we have seen in terms of global equity markets really reflects the fact that we're now in a world where the spread has moved outside China and the global implications could be a lot more significant.'

Here, Kendall said, the Reserve Bank was still expecting the year's soft start to improve and was holding interest rates steady, but 'clearly the situation is evolving really, really rapidly'.

However, 'the nature of the shock is a little unusual,' and interest rate cuts might not be as useful as a 'fiscal response,' such as government business relief.

As for the New Zealand dollar, it was still strong at US63c but Kendall said it could well drop.

'There had been already been a bit of a depreciation of the New Zealand dollar in February … but if we see the situation worsen and it's going to affect New Zealand, we would expect the currency to act as a bit of a shock absorber, giving a bit of reprieve for exporters.'

Hamilton Hindin Greene analyst Grant Williamson says the markets are likely to remain volatile has the coronavirus spreads.

Hamilton Hindin Greene director Grant Williamson said the New Zealand stockmarket was still at relatively high levels, so investors were deciding to 'take a little bit off the table'.

'Obviously, everyone had their fingers crossed that we would see a decline in the spread, that was what the expectations were. But that's not what has happened in reality.'

The further restrictions coming from Europe and the Middle East showed that the spread was ongoing, he said.

Workers begin to return to work in Beijing, China, wearing protective masks.

'Until we see a slow down in that and some positive news, these markets are going to remain very volatile,' Williamson said.

David Carter, chief investment officer at Lenox Wealth Advisors in New York, said a rebound on Wall St was not expected until the spread of the virus peaked.

'Historically, markets always recover from these health scares but only after the crisis peaks. We are watching closely for signs of a peak. However, the spread to Italy suggests a peak is not near.'

New Zealand tourism or export-sensitive stocks are already feeling the effects, with Air New Zealand announcing that the virus would dampen profits by up to $75 million. The stock opened at $2.47c today, down 26c since last Friday.

Auckland Airport's share price has fallen 41c to $8.24 since the same point, and Tourism Holdings is off 19c to $2.65.

Sharemarkets were chilled by news that coronavirus numbers were growing in South Korea, Iran, Japan and Italy.

Yesterday Kuwait suspended all flights with Singapore and Japan, after doing the same to South Korea, Iran, Thailand, Italy and Iraq. It has nine cases, all from Iran.

Gold, a traditional safe haven investment when currencies waver and economic shocks occur, reached seven years highs on Monday before easing one per cent on Tuesday.

The spot gold price slipped to US$1,644 per ounce after hitting $1,688, its highest since January 2013.