The recent outbreak of a coronavirus has had a significant effect on the Chinese economy and is displaying flow-on results elsewhere around the globe.
The Shanghai Composite Index ended January 22, 2020, down by 2.8%, the most significant single-day drop in over thirty years. According to records, this is also the worst end to the Lunar Year of all time. The timing is unfortunate, given the fact that the Lunar New Year is usually a time of rallying for the yuan, due to higher public spending over the holiday.
These massive falls are generally attributed to rising panic surrounding the Wuhan coronavirus. There are over 650 confirmed cases worldwide and has already caused 18 deaths. China has quarantined two major cities (with a combined population of 17 million) and imposed broader travel bans on neighboring towns as well. These travel bans come at a crucial time, as the Lunar New Year shows increased rates of travel as families attempt to gather over the public holiday, furthering the risk of transmission.
The Chinese healthcare industry is the only sector experiencing growth amid the coronavirus scare, as sales of pharmaceuticals and medical attention soar. This is even though at the time of writing, there is currently no drug that offers a direct cure for the coronavirus.
Bitcoin also fell 2.5% yesterday, down to $8,450. This is seen as a significant problem because bitcoin is presented as immune to such global crises. In reality, several factors have had severe impacts on various stock markets, which in turn affect shares in bitcoin. Bitcoin has been found to most closely mirror the S&P 500, both positively and negatively. This major shift in the Shanghai Composite Index and subsequent fall in bitcoin suggests it is a lot more open to many global economies, and not as stable as previously thought.
Bitcoin trends are also a significant predictor of trends in altcoins. So if bitcoin sustains these drops as a result of panic over the coronavirus, it’s highly likely all other cryptocurrencies will experience losses to some degree as well.
There is a significant concern that these major drops in the Chinese stock exchange are going to have massive flow-on effects for the rest of the global economies. Already, comparisons are being drawn to the effects that were felt as a result of the 2002 SARS outbreak. Other parts of Southeast Asia are experiencing declines, but the Philippine Benchmark Index managed to rise almost 2% after positive 2020 predictions.
But despite the significant effect that the coronavirus is having on various global stock exchanges, it is believed that things will revert to normal swiftly and that the drop will be short-lived. The World Health Organization has not yet declared a state of global emergency, stating that it is still “too early” to do so. While this might be possible, the Shanghai Composite Index will likely experience tumult until the panic surrounding the coronavirus subsides.