'Pause' in stocks sell-off as coronavirus fear subsides

Oscar Williams-Grut
Senior City Correspondent, Yahoo Finance UK
A medical staff member holding a test tube after taking samples from a person to be tested for the new coronavirus at a quarantine zone in Wuhan, the epicentre of the outbreak, in China's central Hubei province. Photo: STR/AFP via Getty Images

Investor fears about the spread of the deadly coronavirus appear to be easing.

Asian stock markets bounced overnight on Wednesday and European shares largely avoided losses at the open.

The Shanghai Composite (000001.SS) added 1.2% on mainland China, despite no market intervention from the People’s Bank of China on Wednesday. The central bank was forced to step in and inject liquidity in markets on both Monday and Tuesday.

Elsewhere, the Hong Kong Hang Seng (^HSI) rose 0.2% and Japan’s Nikkei (^N225) closed up 1%.

Major stock indexes in Europe had a quiet open but avoided the large swings that have characterised much of the last week and a half. The FTSE 100 (^FTSE) was up 0.5%, while the DAX (^GDAXI) in Frankfurt and the CAC 40 (^FCHI) in Paris were both flat.

US stocks had rallied strongly on Tuesday and futures were pointing to another positive open later today. S&P 500 futures (ES=F) were up 0.2%, Dow Jones Industrial Average futures (YM=F) were up 0.3%, and Nasdaq futures (NQ=F) were up 0.5%.

Bethel Loh, a macro strategist at ThinkMarkets, said there had been a “pause” to the panic in markets.

“There's a sense that risk assets are turning the page very quickly on the coronavirus narrative, as new novel cases per day slow to under 20% and the recoveries/death ratio rises to 2-for-1 just about,” Loh said.

READ MORE: Coronavirus sparks biggest Chinese stock crash since 2015

Chinese authorities said overnight that the death toll had risen to 490 on mainland China, with 24,324 people now infected. In Japan, 3,000 people have been quarantined on a cruise ship after a passenger tested positive for coronavirus.

The virus’s rapid spread has sparked swings of more than 1% in major stock markets over the last week and a half, as investors get to grips with the possible economic impact of the epidemic.

Sebastien Galy, a senior macro strategist at Nordea bank, said the outbreak still looked likely to dent Chinese growth.

“With 60 million under lockdown and a significant part of the economy in lockdown, the expectations of 1 to 1.5% hit on growth is unfortunately on track,” he said.

However, Graham Kitchen, chair of Invesco Perpetual Select Trust fund, suggested the sell-off may have been overdone.

“The outbreak of the coronavirus has prompted a classic flight to safety, but it appears it is being well contained and, from a market perspective, will likely not have a long term impact and, conversely, may provide short term opportunities for investment,” Kitchen wrote in the fund’s half-year report, published Wednesday.

READ MORE: Why stock markets are panicking about coronavirus