According to analysts at Rabobank, global stocks are in a risk-off mode amid escalating concerns about the coronavirus and the beginning of 2020 has started to look alarmingly similar to 2018.
“Back then the US stocks extended their impressive 2017 gains in the first few weeks of trading only to plunge at the end of January and sustain heavy losses in the first half of February. In that period the S&P 500 Index plunged almost 12% from the peak to trough on the back of rising concerns that inflation may rise much faster than initially anticipated forcing the Fed to accelerate the pace of monetary policy tightening. It was just a taste of what was to come as 2018 proved to be a tumultuous year for the US equities which set record highs in September only to end the year deep in the red.”
“Back to 2020, global stocks are in a risk off mode amid escalating concerns about the coronavirus. The S&P 500 Index plunged 1.57% on Monday trimming its year-to-date gains to just 0.40%. One could argue that this is just a correction from seriously stretched levels that will ultimately prove as an opportunity to buy stocks on the back of an assumption that the Chinese officials will, eventually, get on top of the coronavirus.”
“Looking more broadly at the EM space, the pace of capital inflows into risky assets slowed down last week when concerns about the coronavirus increased. Exchange-traded funds focused on emerging markets attracted USD 311.7mn in the week ending January 14 – this was significantly lower than USD 3.16bn in the previous week. The impressive run of 16 consecutive weeks of inflows may come to an end if risk aversion continues to rise.”