This anticipation together with favourable US economic data and the news that China will cut tariffs on a variety of US imports had led to equity prices recovering to almost the pre-virus levels. Photo: Xinhua
This anticipation together with favourable US economic data and the news that China will cut tariffs on a variety of US imports had led to equity prices recovering to almost the pre-virus levels. Photo: Xinhua

#Coronavirus: Equity prices recover to almost pre-virus levels

By Chris Harmse Time of article published Feb 10, 2020

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PRETORIA – It seems that the coronavirus is still well and alive, this despite a surge in equity prices during last week. It was thought by many investors that the level of contamination of the virus could be isolated and reduced. 

This anticipation together with favourable US economic data and the news that China will cut tariffs on a variety of US imports had led to equity prices recovering to almost the pre-virus levels. 

US share indices indeed reached new record levels on Thursday. The news, however, that the death toll by the virus had reached 634 on Friday, with new cases reported climbing by 3 000 a day putting the world total number of people infected on 31 000, had markets contracting strongly again on Friday. 

The US equity markets reacted negative on this news and the Dow Jones Industrial Index opened 170 points lower on Friday as concern about the economic impact of the coronavirus overshadowed data showing a strong US jobs market. 

The US created another 225 000 new jobs in January, beating expectations of 165 00 by a great margin. The unemployment rate remains on 3.6 percent.

In Asia share prices also came under pressure on Friday as news of further infections on a cruise ship off Japan offered another reminder that cases remain on the rise. Singapore boosted its disease response to the second-highest level, the same one for the Sars epidemic. 

Chinese stocks had their worst day since May 2019. A sell-off had led to a $400 million (R6.02 billion) loss in market capitalisation on the Shanghai market alone. The MSCI index, although recording one of its highest weekly gains till last Thursday, contracted sharply on Friday. The MSCI emerging market index had fallen by 0.6 percent on Friday on the back of the increased death toll. It is now feared that the virus disruption to the Chinese economy will continue in the short run and that investors may decide in weeks to come to avoid risky assets, especially emerging markets equities and currencies.

Domestically, the JSE followed the world trend during the first four days last week as the Alsi climbed 1 703 points or 3.10 percent, recovering most of the losses since the outbreak of the virus. The news on Friday that the virus infections in fact are now accelerating had led to a sell-off and the Alsi ended Friday on 57 276 points or 255 points lower for the day. Equity prices overall however recovered strongly last week. The continuous load shedding by Eskom, the coronavirus effect and the news that the business confidence for South Africa had fallen in January with 0.9 index points to 92.2 points had a negative effect on the rand exchange rate. The currency depreciated by another 30 cents since last Wednesday and traded on R15.08/$ on Friday. 

The rand has lost more than 100 cents against the dollar since the beginning of the year. Against the pound the currency also depreciated for the year with 100c to trade on R19.53 and against the euro the rand traded weaker with 86c for the year to date on R16.55. Despite the weaker rand the price for diesel and petrol by Thursday last week had shown a large over recovery. The much lower international Brent oil price of around $55 per barrel at this stage may lead to a decrease in the diesel price.

Dr Chris Harmse is an Economist and a Chief Investment Banker.

BUSINESS REPORT

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