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Outbreak of pneumonia virus dampens Asia sentiment

The outbreak of a new type of pneumonia virus - novel coronavirus (2019-nCoV) -originally founded in Wuhan, a central city of China, has escalated dramatically over the last two days.

Markets have priced too little in, in terms of the spreading of this virus across multiple Asian cities from Wuhan and millions of travellers across China for CNY is likely to worsen the situation. Information asymmetry underscores the possibility that official figures of the number of patients might have been under-reported for social stability reasons.

Not only has the number of diagnosed patients soared but also for the first time, China’s official media has confirmed human-to-human transmission. 15 medical staffs in the city of Wuhan were diagnosed with pneumonia caused by the virus.

This reminds Asian investors of the SARS crisis during 2003, when over 8000 people were infected globally and 774 people died. The 2003 SARS outbreak was estimated to have caused US$ 12.3-28.4 billion of economic loss and an estimated decrease of 1% in the GDP of China and 0.5% in Southeast Asia, according to a scientific journal published in Hindawi in 2018.

Safe-haven and defensive sectors might outperform the riskier assets in the days to come, with gold, yen, palladium, US dollar, healthcare stocks in a more favourable position against the disease crisis. Whereas consumer discretionary, hospitality, retail, aviation and entertainment sectors are likely to suffer from reduced number of social activities and outings.

Hong Kong – Cash (5 mins)

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