Photo: sashares.co.za

Will JSE catch cold as coronavirus makes world markets sneeze?

JSE is at the mercy of global sentiment as markets worry that the outbreak in China could have a SARS-like impact.


Photo: sashares.co.za

Given that SA has a relatively small but open economy, financial experts often say – only half-jokingly – that whenever the world’s major economies sneeze, South Africa catches a cold.

As analysts wait to see how the Johannesburg Stock Exchange (JSE) responds to international financial market concerns about the coronavirus outbreak in China, this statement could become more true than usual.

Certainly, at lunchtime on Thursday 23 January the JSE was tracking weaker in line with global sentiment. 

The outbreak is known to have already killed 17 people, with about 600 more being treated. It is centred around the Chinese city of Wuhan, which has a population of about 11 million people, but cases has been reported in various parts of China and the virus has also spread to Macau, Hong Kong, Japan and the US.

World markets in mild panic after SARS impact

World markets went into a mild state of panic earlier in the week, fearing that this could turn into a global pandemic such as severe acute respiratory syndrome (SARS) did in 2002 and 2003. SARS also originated in China and killed around 800 people worldwide. 

SARS had a significant impact on world markets as it hit global travel — both business and leisure — very hard. Oil companies, airlines, tourism businesses, hotels and tourism-dependant economies were among those that suffered as a result. 

Share and oil prices all fall as a result

The current coronavirus outbreak appears to be less severe and more contained. Nevertheless, share prices in China, Japan, Australia and the US all fell this week. Oil futures dropped to a seven-week low.

Airline shares were hard-hit. Qantas Airways (Australia), Japan Airlines, ANA (Japan) and China Airlines all lost value.

“Downside demand risks due to the Wuhan virus appear to be a growing concern for the market, and understandably so, with any clampdown on travel likely to weigh on fuel demand,” financial services firm ING Research said in a statement released on Thursday. 

Goldman Sachs said it expected the oil price could fall by US$3 a barrel as a result. Senior commodity strategist Damien Courvalin predicted that global oil demand could potentially fall by 260 000 barrels per day. 

SARS outbreak cost world $40bn

According to a study by academics Jong-Wha Lee and Warwick J McKibbin of the 2002-2003 SARS outbreak, the total economic loss was around $40 billion (R575.8 billion). Another study estimated that the total gross domestic product (GDP) of the world had decreased by 0.1% as a result.