WORLDVIEW: Why is the coronavirus freaking markets out?

The outbreak of the coronavirus has caused widespread alarm. But, while people may be anxious, the real panic has been felt in global financial markets.
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The outbreak of the Wuhan coronavirus has caused widespread alarm. With over 4,000 cases identified all over Asia and in the US and Europe, the streets of many global cities are now filled with people wearing medical masks in hopes of fending off the potentially life-threatening respiratory virus.

But, while people may be anxious, the real panic has been felt in global financial markets. On Monday, the Dow, the S&P 500, and the Nasdaq all recorded falls of between 1.6 and 1.9% as fear of the impact of the virus spread. Chinese stock markets were already slumping – they fell nearly 4% before shutting down for the Lunar New Year – and European markets fell too – the FTSE 100 and the Dax were down more than 2%. As for the JSE, it was down almost 3%.

Why would a virus that has affected only a few thousand people be causing such dramatic financial market panic around the world? After all, previous viral outbreaks, such as SARS in 2002/3, had a limited impact on markets. The chart below, taken from the Financial Times, illustrates the point.

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