The financial markets were initially rocked by the escalation of the coronavirus, before quickly calming. The uncertainty associated with the disease itself, and the draconian quarantining measures, justify some short-term caution for risk assets in general, and particularly for EM equities, including Chinese stocks, which account for one third of the EM benchmark. In the short term, Chinese consumption will be hit very hard, while the widespread lock-downs will bite into global supply chains.
MRB just published a report that noted while the infection rate of the Wuhan coronavirus exceeds by a wide margin that of analogues such as SARS and MERS, its mortality rate has also been far lower. The latter implies that data on the high recovery rate from the disease could soon supplant the alarming reports of new infections. There are decent odds that the outbreak will recede within three months, and that the fear of the coronavirus will prove to have been its most dangerous manifestation.
Thus, we remain mildly pro-growth in our overall investment stance, although investors should keep in mind that the investment cycle is mature and avoid making aggressive bets.