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Coronavirus: Potential Signs Of Containment, Key Markets To Watch

By Matthew WellerMarket OverviewJan 30, 2020 01:19PM ET
www.investing.com/analysis/coronavirus-potential-signs-of-containment-key-markets-to-watch-200503254
Coronavirus: Potential Signs Of Containment, Key Markets To Watch
By Matthew Weller   |  Jan 30, 2020 01:19PM ET
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This week, traders have been weighing generally optimistic signs from massive U.S. technology companies against the continued spread of coronavirus. So far, virus fears are winning out as seen by the week-to-date drop in major global indices and rally in traditional safe havens like gold and bonds. That said, the situation is far from resolved, so we wanted to take a look at the raw numbers and highlight different market opportunities for traders to examine.

While the total number of infections and deaths continue to grow, it’s worth noting that the percentage growth rate of those figures has shifted lower in recent days. Reviving and expanding our rough, “naïve growth” coronavirus model from earlier this week, we can see that the growth rate of infections and deaths on mainland China has shifted down to “only” around 25-30% over the last two days:

Infection And Death Rates On Mainland China
Infection And Death Rates On Mainland China

Source: Chinese Health Commission, GAIN Capital.

Reiterating that I’m not an epidemiologist and this is far from an exhaustive model, there are tentative signs that Chinese authorities may be slowing the growth rate of the infection, a critical step toward ultimately containing it. Early data from other countries is even more optimistic, with no deaths reported in other countries. We’ll continue to monitor these developments in the coming days, as any new outbreaks in other countries or reacceleration in growth would be very worrisome.

China's FTSE A50 Index
China's FTSE A50 Index

Market Implications

Based on the general recovery in risk assets since Monday’s swoon, traders are taking a similar cautiously optimistic view toward the virus’s spread. At this point, it’s premature to speculate on the ultimate economic impact, but this quarter’s growth is likely to slow sharply with many heavily populated regions of mainland China on lockdown during the critical New Year holiday. The SARS epidemic of 2003 reportedly shaved 1-2% off China’s GDP growth and coronavirus has likely already eclipsed the total number of infections from SARS (though early indications of the death rate are lower).Rather than wait for the official economic figures, traders have aggressively sold Chinese assets, with USD/CNH retesting the key 7.00 level and the FTSE China A50 index shedding about 12% over the last two weeks:Source: TradingView, GAIN Capital.As we noted earlier this week, individual equities and markets could provide additional trading opportunities in the days and weeks to come.

Assets Likely To Be Correlated With Spread Of Coronavirus:

  • Gold
  • Bonds
  • “Safe haven” currencies (JPY, CHF, and USD)
  • Medical safety equipment stocks (LAKE, APT, etc)
  • Certain pharmaceutical stocks (BCRX, GILD, INO, MRNA, NVAX)
  • Markets Likely To Be Inversely Correlated With Spread Of Coronavirus:

  • Oil
  • Growth-sensitive currencies (AUD, NZD, CAD, etc)
  • Global stocks (emerging markets in particular)
  • Airline stocks (DAL, AAL, UAL, CEA, ZNH, etc)
  • Other travel-related stocks (MAR, H, HLT, CCL, RCL, NCLH, etc)
  • Consumer good stocks (DIS, SBUX, NKE, etc)
  • *Please note that not all of these markets are available in all regions.

    Coronavirus: Potential Signs Of Containment, Key Markets To Watch
     

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    Coronavirus: Potential Signs Of Containment, Key Markets To Watch

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    Comments (6)
    Maxamuud Maxamed
    Maxamuud Maxamed Aug 07, 2020 6:46AM ET
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    good
    John Smith
    John Smith Jan 31, 2020 8:21AM ET
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    I bet he is writing this article while selling stocks, as how else can the market be down so much without the big guys selling
    John Smith
    John Smith Jan 31, 2020 8:18AM ET
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    guess all the new data about the virus release show him wrong
    Jay pipin
    Jay pipin Jan 31, 2020 12:40AM ET
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    Just my view: early next week the virus or data will push markets back to Thursday levels, then only reprieve will be china signing deal that will be a cannonball, then end of Feb the virus is still uncontained and markets begin the panic, the production will crash due to workers being sick or staying housebound etc, then crash until around may, all time highs will be in.
    John Smith
    John Smith Jan 31, 2020 12:40AM ET
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    much earlier as this spread faster than SARS
    Jose Emenis
    Jose Emenis Jan 30, 2020 10:12PM ET
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    Wall Street isn't taking the coronavirus seriously.... Haha!!.... Let's see what they think when the dead bodies are stacked 3 high in Times Square.
    peter neal
    peter neal Jan 30, 2020 7:26PM ET
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    I guess you are trying to say buy some more stocks. No reason to stop buying now. I personally see the equity rally going on for another decade. I believe the Fed has the resources to do that and they have even made direct equity purchases yet. I wouldn't let s little flu interupt the advance.Thanks
    Tubsy SkinntFinger
    TubsSkinnyFinger Jan 30, 2020 7:26PM ET
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    Sarcasm?
     
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