Since the start of the year to 2 March, both the Shanghai Composite Index and MSCI China indices have returned 5%, according to FE Analytics. This compared to returns of 1.5% by the MSCI World index and losses of 3.7% by the S&P ASX 200.
So far there have been 33 confirmed cases of coronavirus in Australia while there were around 89,000 cases worldwide.
Michael Metcalfe, global head of macro strategy at State Street, said: “China’s equity markets have staged a remarkable recovery in the past month. However, outside China it is a very different story, with global equity markets suffering sharply as the rate of contagion accelerates.
“This now invites the question, at what point could the weakness in global equities be contained either by a less sharp rise in new cases or optimism about a policy response to offset weaker growth?
“Either way, it is a curious fact that Chinese equities have outperformed global markets, even though Chinese growth, initially at least, seemed certain to take the biggest hit.”
Roger Montgomery, chief investment officer at Montgomery Investment Management, said: “China is doing an admirable job of quarantining the virus and history may show they did a better job than more liberal countries. Unsurprisingly, liberal Europe has vowed to keep its borders open. And so, the virus will not be contained, with the associated pain being felt possibly more acutely outside of China”.
However, PIMCO noted the quarantine policy in place in China would have a negative impact on its economic activity at a later date. This would then feed into global markets as China accounts for 25% of global manufacturing activity.
Tiffany Wilding, economist at PIMCO, said: “The longer quarantines depress Chinese economic activity, the more the economic costs will rise. Weaker businesses that cannot withstand cashflow disruptions will start to feel stress, which could spill over into financial markets, tighten financial conditions and exacerbate financial weakness.
“In China, we estimate growth in Q1 real GDP could contract by 6% (at a quarterly annualised rate) which is a dip to 3% year-on-year growth. Last year, China averaged 6% growth.”
Performance of Shanghai Composite, MSCI China, MSCI World and ASX 200 since the start of the year to 2 March
