A tone of cautious optimism had begun to return to global equity markets last week on the back of the news that new cases of Covid-19 (coronavirus) were levelling off in China. However, this positive news has proved short-lived and has now been overshadowed by a spike in new infections outside of China.

A surge of cases in South Korea, Japan, Iran and Italy over the weekend has pulled the rug out from underneath equity markets and we start the new week with investors on a firmly “risk off” mood.

Up until the weekend stock markets had been largely relaxed and some might say complacent about the impact of the coronavirus on the global economy. Economic data releases have to date been thin on the ground, however data from Clarksons, a shipping research company, has shown that port calls by container carriers fell 30% in February from a year ago and oil shipments to China from the Middle East had fallen by 12% over the same period.

Before this latest spread of the virus, there was a growing concern that the coronavirus was going to have an impact on the global economy, particularly through supply chain disruption. Factory shutdowns in the Japanese automotive industry have been an early sign of such disruption. But there are other areas of likely pain. In recent years, many American and European businesses have benefitted from an influx of Chinese tourists who have tended to stay longer and spend more on their travels compared to other travellers. This has been a positive for airlines, hotels, major tourist attractions and high-end retailers. But now with the coronavirus outbreak in China, and elsewhere, there may well be a more serious near-term headwind facing these industries.

Despite an absence of hard reliable statistics on the ground, the Chinese authorities should nevertheless be commended for their recent efforts to contain the virus and their awareness of the potential impact on the domestic economy. Cuts to interest rates and an increase in cash reserves at the banks should help and further policy support is likely in the short term with targeted tax cuts towards small and medium-sized Chinese companies.

Outside of the virus hit Hubei province, it is interesting to note that businesses are working hard to get back on track. Local media reports have reported that in Shanghai 97% of Fortune 500 companies and 93% multinationals with regional headquarters in the city have now resumed regular operations.

Turning to the situation facing other countries, and although it is early days, strong public health infrastructure in countries such as Italy, Korea and Japan should provide a degree of comfort. Other Middle Eastern and developing Asian countries unfortunately do not have this luxury.

In conclusion, markets are likely to remain highly sensitive and jittery this week and our experienced teams across our offices are on hand to steer you through this fast evolving situation.