One of the world’s leading authorities on Asia warns the coronavirus outbreak could wreak havoc on the global economy.
Markets are underestimating the potential fallout of the coronavirus outbreak, which could be a “Lehman-type” moment for the global economy, according to economic research firm AdMacro.
Chinese officials on Tuesday confirmed that the death toll from the virus, which originated in the city of Wuhan, had reached 106 with 4,515 people infected.
Global equity markets sold off sharply on Monday, but began to stabilize on Tuesday, with stocks still hovering close to recent record highs. Many market analysts have pointed to the 2003 SARS outbreak as an indication of the short-term nature of any potential economic fallout.
SARS affected around 8,000 people and resulted in nearly 800 fatalities, and was estimated to have reduced growth in China in 2003 by 1 percentage point while trimming 0.5 percentage point off growth across East Asia.
However, AdMacro Head of Research Patrick Perret-Green told CNBC Tuesday that the markets were being “far too casual” given the growth of China’s economy since 2003, along with the increase in its urban population and accessibility of travel.
Corporate CEOs and top executives desire certainty and resent unpredictable events. In this instance, there is an extraordinary high level of uncertainty. The chances are likely that companies will temporarily pull back until there is clarity.
The IIMF on Tuesday urged policymakers to keep a close eye on financial vulnerabilities such as rising debt levels that could pose medium-term risks to the global economy and said further monetary easing was not the answer.
Consistent with the notion of a negative liquidity premium, whereby more liquid markets like the S&P are ironically more vulnerable to fragility shocks, selling vol on markets with worse fundamentals has perversely become a better investment than selling US large caps vol…