Virus Fears Drive Sell-Off

Channel: Bloomberg Markets and Finance
Published: 5 hours ago

Description
Jan.27 -- James Athey, senior investment manager at Aberdeen Asset Management, discusses the selloff in markets on fear of the economic and human impact of the deadly coronavirus. He speaks on “Bloomberg Markets: European Open.”



Transcript
So we sit here with markets really taking a leg downwards this morning, no surprise, given what we've seen in the limited asian session. I suppose does this look. I mean we're looking at two things: we're looking at the actual virus itself and then, regardless of the facts, there we're looking at the chinese government's response, and i suppose, if you put those two things together, does this look ...
like a sensible sell-off yeah. I think so. If it always surprises me or always, has surprised me, at least in in recent years, how easily and quickly risk markets have been able to shrug off things which do ostensibly look like they should require a discount in terms of pricing. It'S sort of looked like that was going to be the playbook. I think. Probably the chinese new year is having an impact in not just because we know that normally it's a period of sort of economic volatility, but we would expect to be economic strength, but also because we're not getting necessarily the feedback from chinese risk markets as difficult to Know how investors on the ground are feeling about things. So without that extra information, i think you know markets of earth on the side of caution and and sold off a bit and, as you describe in terms of potential economic impacts, that definitely does seem to make sense. Okay, can't you already sort of make a call here, james, as you see something like? Maybe a billion trips cancelled inside of china and what is likely to be a big drop, at least in the short term in tourism. You'Re not gon na see the bookings on flights. You'Re, not gon na see the hotel bookings you're, not gon na see restaurant bookings.

I mean it's gon na be a drop for commodities. It seems like this could have if it's one week or two huge economic impacts. Yeah, that's absolutely right. I mean just the information that we know so far in terms of people's restrictions on travel. You know firms operating in in specific regions, desire to shut down production or to close off their offices to try and discourage people from traveling. Absolutely that's likely to have an impact. I thought it was interesting to observe netflix's performance. The back end of last week. There seemed to be some narrative emerging that people wouldn't travel, but maybe they would stay home and an order. You know binge binge watch box sets on netflix and i think it's important when you're trying to do the economic analysis to recognize that. Maybe there is some substitution we can own about things like, for example, domino's, pizza, being a sort of defensive investment in terms of economic weakness, because it's not that people stop consuming takeaway during a period where they don't feel as wealthy. But actually takeaways takes the place of going out going and eating out in in sort of more expensive.

Shall we say circumstances so there are some offsets potentially but the sheer magnitude of the disruption. I think it would be. It would be folly not to expect that to play out in the economic data yeah and james when he saw look at the sectors. You see some some reaction that you would expect, i suppose, including oil and gas, under pressure. This is a chart that goes back to 2003 and shows us the commodity index, remember commodity index and that took a hit during the early stage of the sars outbreak, but then, of course, was unwound afterwards. This is sort of typical. The way that we would expect. I guess commodity markets to react in this situation. Yeah exactly. I think the the comparison with the sars outbreak is is mostly a good framework to begin with, but i think you know where you are in the economic cycle and where you are relative to policy levers that have or haven't already been pulled and where you are In terms of business and consumer confidence will have an impact as well and in that, when you start to overlay that type of analysis, i think there's a potential for this. Were the outbreak to be something similar of to sars in terms of magnitude and significance, shall we say you know this? Has the potential to be a bit more disruptive and destabilizing, because we're just at that much more, you know concerning, shall we say or inflection point of the cycle:.


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