SYDNEY- Asian shares took a sudden turn for the worse on Tuesday as mounting concerns about a new strain of coronavirus in China sent a ripple of risk aversion through markets.
Safe-haven bonds and the yen edged higher as investors were reminded of the economic damage done by the SARS virus in 2003, particularly given the threat of contagion as hundreds of millions travel for the Lunar New Year holidays.
“It’s an essential enough development that markets will monitor it on the risk radar as, if things turn critical, it could provide a massive blow to the airline industry and a knockout punch to local tourism,” said Stephen Innes, Asia Pacific market strategist at AxiCorp.
The mood swing saw MSCI’s broadest index of Asia-Pacific shares outside Japan slip 1 percent after a steady start. Hong Kong, which suffered badly during the SARS outbreak, saw its index fall 2 percent.
Japan’s Nikkei lost 0.8 percent and Shanghai blue chips 1.5 percent, with airlines under pressure. The caution spread to E-Mini futures for the S&P 500 which eased 0.4 percent, while EUROSTOXX 50 futures lost 0.3 percent.
Investors had already been guarded after the International Monetary Fund trimmed its global growth forecasts, mostly due to a surprisingly sharp slowdown in India and other emerging markets.
There had been some relief as US President Donald Trump and French President Emmanuel Macron seemed to have struck a truce over a proposed digital tax.
The two agreed to hold off on a potential tariffs war until the end of the year, a French diplomatic source said.
Trump is due to deliver a speech at the World Economic Forum in Davos later on Tuesday, and trade and tariffs could be on the agenda.
In a tweet late on Monday, Trump said he would be bringing “additional Hundreds of Billions of Dollars back to the United States of America! We are now NUMBER ONE in the Universe, by FAR!!”
The Bank of Japan cited lessened trade risks when nudging up forecasts for economic growth after holding a policy meeting on Tuesday. — Reuters
