Asia Catches A SARS 2.0 Cold

Memories of the SARS outbreak of 2002/2003 have returned to haunt Asia this morning. Stock markets are down across the region as news emerges that the as yet un-named SARS-like virus originating in Wuhan in China has killed four people and has been confirmed as transmissible from human to human.


The timing is unfortunate as the great migration that is Chinese New Year starts in Mainland China. The accompanying possibility is that infectious cases could rise. Asia will remember back to the origins of SARS outbreak and its adverse effects on economic activity in the region. It is, therefore, no surprise that both equities and oil are being marked lower across Asia today.


The International Monetary Fund (IMF), also moderated its growth rates for the world in 2020 overnight with Moody’s lowering Hong Kong’s credit rating as the protests erode growth there. As they say, timing is everything.


If there is a silver lining, the Asia region and China, in particular, appear much better prepared than in times past to manage the outbreak. The situation itself though is an evolving one, but today’s price action in early Asia is perhaps, a window to the future should this SARS-like viral outbreak seriously escalate. We would expect Asian equities, currencies, and also energy, to all come under pressure on lower growth fears for the region.


US markets were closed overnight for Martin Luther King Day, meaning that the Bank of Japan’s rate decision will take centre-stage. We would expect an unchanged announcement around 1100 SGT with the usual rhetoric that they stand ready on the monetary spigot should economic activity slow dramatically. Otherwise, they will be content to continue their managed yield curve version of quantitative easing with no changes in rates.


Attention will then shift to the Davos conference, with US President Trump due to make an address at 1830 SGT. One positive development overnight, was the truce between the United States and France over France’s proposed digital tax law, by the two leaders. That appears to have been quickly overshadowed this morning with President Trump’s address the primary potential source of headline volatility over the day ahead.




Asian stock markets are a sea of red today as fears grow that the SARS-like virus outbreak in China could develop into a full-blown rerun of the SARS crisis 17 years ago. The impact on regional growth is well documented, and this is clearly dominating the minds of investors this morning.


The Nikkei 2225 is down 0.75%, with China’s Shanghai Composite down 1.10% and the CSI 300 down 1.0%. South Korea’s Kospi is 0.70% lower, and Singapore’s Straits Times is down 1.10%. Regionally, Jakarta, Kuala Lumpur and Manilla are all in the red.


Hong Kong’s Hang Seng has been hit particularly hard by a double blow of the Moody’s downgrade and the SARS-like virus concerns as Chinese New Year starts. The Hang Seng is nearly 2.0% lower in early trade.


The falls across Asia highlight, if nothing else, that the global economy has precious spare capacity to absorb unexpected crises. Equity markets globally have been pumped up by the return of the global central bank’s easy monetary policies, not fundamentals necessarily. Monetary air in the tires is just that, air.




Asian currencies are under pressure against the dollar today as a potential rerun of SARS, sees the post-trade deal Asia recovery hit a speed hump this morning. The exception has been the Japanese Yen, benefiting from haven flows, with USD/JPY falling 0.25% to 109.90. A fall below support at 109.80 signals a deeper correction for USD/JPY with a lot of short Yen positioning put on after USD/JPY rose above 110.00.


Off-shore Yuan is under pressure with USD/CNH rising 300 points to 6.8990 in trading this morning. A break above 6.9000 may well trigger stop-loss buying and some “smoothing” action by the PBOC. The Korean Won has also fallen sharply, the USD/KRW rising 0.40% to 1166.00 and the Singapore Dollar falling 0.20%, USD/SGD rising to 1.3495.


Trade sensitive Australian and New Zealand Dollars have also had their wings clipped, falling 0.30% and 0.15% respectively to 0.6855 and 0.6610.


Looking forward over the next week or so, individual countries that report cases of the Chinese virus appearing within their borders, can look forward to a summary guilty judgement by financial markets and selling pressure on their currencies — the rally in Asia Inc. FX markets are over for now until we have more clarity on SARS 2.0.




Oil has moved lower in Asia as markets fret over the potential economic cost of a SARS 2.0 epidemic. Brent crude has fallen 0.60% to $65.00 a barrel, and WTI has also fallen 0.60% to $58.50. The downward pressure on oil will persist through the Asia session as the region moves into risk aversion mode.


Oil’s direction from here will very much depend on how the SARS 2.0 situation evolves in Asia. OPEC+ can quickly meet production losses from Libya and potentially Iraq. OPEC+ is much more poorly equipped to deal with a loss on the demand-side of the equation, should Asian requirements take a sudden negative hit.




Gold is benefiting from haven demand today as Asian investors take fright over the potential consequences of an escalation in China’s health scare. Gold has risen 0.35% to $1566.00 an ounce this morning, overcoming resistance at $1562.00 in the process.


Gold is likely to remain well supported for the remainder of the Asian session, but the longevity of the rally is entirely dependent on the evolving situation in China. Gold has no technical resistance now until $1611.50, the 8th of January high. However, it is hard to see gold progressing above $1600.00 an ounce until the health emergency in China escalates sharply and becomes a regional problem.



This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Jeffrey Halley

Jeffrey Halley

Senior Market Analyst, Asia Pacific
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley is OANDA’s senior market analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes. He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays. A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV, Channel News Asia as well as in leading print publications including the New York Times and The Wall Street Journal, among others. He was born in New Zealand and holds an MBA from the Cass Business School.
Jeffrey Halley
Jeffrey Halley

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