by Connor Darrell CFA, Assistant Vice President – Head of Investments
Global equities recorded healthy gains last week as optimism rose that the economy could remain resilient in the face of the new coronavirus outbreak. At this point, the total impact on economic activity remains impossible to quantify, and investors can expect markets to remain jittery until the virus is eventually contained. We have seen little over the last week that would help us to update our current assessments of contagion and severity. The death rate among those infected still sits at around 2%, and while the rate of contagion has also remained somewhat stable, a recent Chinese research report suggests that the virus can spread in multiple ways. Both of these metrics deserve our ongoing attention, as they can help us to assess the potential magnitude of the disease’s impact on the economy, as well as whether the economic effects will largely remain confined to mainland China.

At present, the most impacted areas of the market outside of Chinese equities have been at the sector level. The travel and industrial sectors, as well as some commodity markets have seen more volatility than most other assets as a result of the immediate impacts of quarantines and reduced global travel demand. The technology sector is one that has continued to perform well but could come under pressure if recent containment efforts in China fall short and the virus is able to spread beyond the Hubei Province. One of the biggest differences between the SARS outbreak of 2003 and the current situation is that China is now a much larger component of the global economy, particularly in the technology supply chain. While Hubei province itself is not a major technology hub within China, there are multiple neighboring provinces which contain key production centers for many key inputs in the production of smart phones, TVs, and semiconductors.