China’s coronavirus scare rattled global markets, making stocks extremely volatile. The cases of infected and dead people have been rising in Mainland China, with the latest death toll being about 170.
Having similarities to SARS, coronavirus has spread to other parts of the world, impacting travel demand materially. Not just travel, energy and material stocks, most sectors were dealt a heavy blow by the outbreak.
Can it Turn Into a Global Pandemic?
The chances of this virus spreading are higher than the SARS case of 2003. This is because China’s economy is about 10 times bigger than what it was in 2003, posing much bigger systemic threat to the global financial system. China is way more connected to the globe in terms of business as well.
A Bloomberg article noted that “contrary to 2003, when Chinese tourism was mainly inbound-oriented, Chinese tourists have become a significant driver of global tourism,” per Chris Turner, global head of currency strategy at ING Bank NV and colleagues. This increases the risk of a faster contagion as well as a global growth slowdown.
All market watchers and analysts got busy assessing the economic losses from the outbreak. The effects on asset classes are also being measured.
Currency ETFs to Win
In general, the currencies which are considered to be safe should become crowded bets in recent trading sessions.
Invesco DB US Dollar Index Bullish Fund UUP
The U.S. dollar — one of the safe-haven currencies — should gain from the virus threat. The dollar is near a two-month high against a basket of major currencies currently. Some upbeat U.S. economic data points also bode well for this currency ETF (read: U.S. Dollar Strengthens in 2020: ETFs to Gain/Lose).
Invesco CurrencyShares Japanese Yen Trust FXY
Yen is known as a pure safe-haven asset. Being a large exporter (net), Japan has been witnessing current account surpluses for years, which makes its currency a safe-haven option. Japan recorded a current account surplus of 4.02% of GDP in 2017. The more recent data showed that the current account surplus rose 38% year over year in October 2019. As a result, whenever there is a global market crisis, the currency normally gains. The coronavirus case is no different.
Invesco CurrencyShares Swiss Franc Trust FXF
The Swiss franc is yet another investment that is considered a safe haven for investors. The Swiss franc is now at a three-year peak against the euro.
Currency ETFs to Lose
The bank ING sees commodities and commodity-linked currencies under pressure.
Invesco CurrencyShares Australian Dollar Trust FXA
Australia is a commodity-centric economy, with China being its key trading partner. The Australian dollar is also considered a risky asset and thus has every reason to underperform now. The currency has slumped 3.9% so far this month, making it the second-worst performing currency in the G10.
Market Vectors-Renminbi/USD ETN CNY
Economists expect China's economic growth to slip to 5% or even lower due to the coronavirus outbreak. This has chances of hurting the currency in the near term.
WisdomTree Emerging Currency Strategy Fund CEW
Most of the emerging markets are commodity-intensive. If the virus takes the shape of a global pandemic, lower demand for commodities may weigh on emerging market currencies (read: Is Coronavirus an "Opportunity" for Emerging Markets ETFs?).
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Market Vectors-Chinese Renminbi/USD ETN (CNY): ETF Research Reports
Invesco CurrencyShares Japanese Yen Trust (FXY): ETF Research Reports
Invesco DB US Dollar Index Bullish ETF (UUP): ETF Research Reports
WisdomTree Emerging Currency Strategy ETF (CEW): ETF Research Reports
Invesco CurrencyShares Swiss Franc Trust (FXF): ETF Research Reports
Invesco CurrencyShares Australian Dollar Trust (FXA): ETF Research Reports
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Zacks Investment Research