Covid-19 threatens more than the global economy
Market participants should be braced for political volatility as the world comes close to experiencing a pandemic.
Financial markets finally succumbed this week to fears about the impact of the Covid-19 coronavirus.
Credit and equity valuations took a pummelling as the illness spread across 51 countries, infecting more than 80,000 people globally.
Much of the commentary on the outbreak so far has been focused on how the virus could dent economic growth, through supply shocks or declining consumer confidence.
Locked down areas in the north of Italy are vitally important for the country’s growth, economists warn. If China catches the flu, the whole world sneezes.
But markets should be prepared not only for the risk that Covid-19 takes a heavy toll on the global economy. The spread of the virus could also lead to unforeseen changes in politics.
Emergency measures to contain the spread of a new virus are never likely to be welcomed by those impacted.
Two towns in South Korea broke out in protest last month, for example, after it emerged that the government was going to use the towns as a location for quarantining nationals repatriated from China.
In Italy, far right politician Matteo Salvini has already been sowing discontent, attacking the EU’s Schengen zone as a contributing factor to the spread of Covid-19 in the north of the country.
It is easy to see how disruption caused by the virus could help to shift political balances on a local and international scale.
Market participants must now be ready to tear up their 2020 political outlooks, as well as their economic ones.