It is panic squared.
Asian stocks on Friday experienced their sharpest selloff since the start of the coronavirus outbreak, and that's saying something. They've just closed their worst week since the financial crisis.
Japanese stocks sank like a rock, down 9.4% at one point. Asia's largest stock market, down almost 10% in one day ...
Stimulus is the accelerator. Restrictions on business and travel are the brakes. Those forces are governing market movement short term. And, well, it's a car crash.
Australian stocks had a truly remarkable day. They plunged 8.1% at the open but closed up a sizable 4.4%, a dash of green in a sea of red. That performance ended up being the strongest one-day gain in Australian stocks in more than a decade. Good luck calling a 12.5% intraday move.
Asian markets have been selling off for longer than their counterparts in the West. So it is a surprise, with Japanese stocks already down 22.9% at the start of Friday's trade, to see them mimic the Dow Jones Industrial Average's 9.9% plunge from Thursday. After a little relief in afternoon trade, the Topix closed down 5.0%, meaning it is showing a 26.7% loss for the year.
Energy and financial stocks fared the worst in Japan, as you'd expect. But those two sectors and health care also drove the gains Down Under. Because Australian shares still ended with their worst weekly performance since the financial crisis of 2008, it appears that there was a lot of short covering ahead of the weekend and betting on stimulus ahead. The Reserve Bank of Australia pumped A$8.8 billion (US$5.5 billion) in liquidity into the markets through repurchase agreements, although that's a tiny tweak to stop intraday financial lockup.
Australia's home affairs minister, Peter Dutton, confirmed he has the coronavirus, causing New Zealand's internal affairs minister, Tracey Martin, to isolate herself because the two had been in a meeting. And the Formula 1 race in Melbourne, first of the season, was cancelled. So there wasn't exactly encouraging news on the home front. New Zealand stocks, which close earliest in Asia, didn't enjoy any late-day rally and ended down 4.9%.
Indian shares, some of the last to close in Asia, are up 4.0%, so Asia may see a rally to start the week on Monday. There's a whole weekend of chaos to come before then.
Perversely, Chinese stocks are actually holding up pretty well. The CSI 300 of the largest mainland stocks edged down only 1.4% on Friday. We can attribute this to retail Chinese investors driving that market, and they have few other places to put their money.
No one here in Hong Kong believes the figures on infections out of China, showing that the virus is under control. I would not be surprised to see a secondary wave of infections in China. Even if we don't, the world's most-populous nation slowly is allowing only half its population out of lockdown; in the meantime, economic pain magnifies.
The blame game
Although now is not the time to cast blame, the rest of the world should also not let China turn the tale around about the Wuhan virus. The Chinese Communist Party's propaganda machine is going into overdrive here, seeking to sow the seed of doubt as to the origin of the virus.
A Chinese foreign ministry spokesman has latched onto comments by U.S. Centers for Disease and Control director Robert Redfield, in which the CDC chief said early cases of Covid-19 might have been diagnosed as flu.
That's leading to a counter-narrative that the United States ultimately may be to blame for the virus. U.S. and Chinese politicians can play this kind of game alike.
"When did patient zero begin in U.S.?" the foreign ministry spokesman, Zhao Lijian, said on Twitter. "It might be US army who brought the epidemic to Wuhan."
This movement stems from an off-the-cuff remark at a press conference by a respected Chinese epidemiologist, Zhong Nanshan, who on Feb. 27 said that although the Wuhan virus was first detected in China, "it may not have originated in China."
Zhong, a responsible clinician who uncovered the origins of SARS, later explained that he was simply saying the origin has yet to be pinpointed. The first place that a disease is discovered does not "equate to it being the source," he said. "But neither can we conclude that the virus came from abroad. Only through thorough investigation and tracing can we answer that question."
Reasonable enough. Yet only his first remark is being repeated. It appears there is a concerted party effort now to cast doubt on the origin of the virus. And now is not the time to use information about the virus to your political gain.
The Chinese Communist Party has been under immense pressure since it first tried to cover up the very existence of the virus, then responded slowly to it, even forcing doctors who raised an early alert to recant. So deflecting that blame is now part of the game.
The Chinese ambassador to South Africa, Lin Songtian, is part of the chorus, with comments on Twitter. "Although the epidemic first broke out in China, it did not necessarily mean that the virus is originated in China, let alone 'made in China.'"
All the research so far points to the virus originating in a Wuhan wet market, where wild animals were slaughtered. This matches the origin of SARS, which we believe came from bat-infected civet cats butchered at a similar market in Guangdong Province, across the border from me here in Hong Kong. There is speculation that pangolins are the origin of this particular virus. But again, I'm no doctor.
The species origin is in doubt. The epicenter is not. If the virus had come from another place, let alone outside China, we would not expect to see a huge concentration of cases in one place. They would be spread in multiple locations. So, Wuhan virus it is, until proven otherwise.
Still, Xinhua, the official news agency, is joining the bid to confuse this issue of origin, which frankly is unlikely ever to be established beyond all doubt. "The epidemic was first reported in China, but that does not mean it necessarily originated in China," the editorial states. "The WHO has said many times that Covid-19 is a global phenomenon with its source still undetermined."
A complicit WHO
Ah, the WHO. China has been actively aided by the World Health Organization in masking where the disease comes from. The health body has created a name for the disease caused by this virus, Covid-19, that deliberately has no "sense of place." The WHO does still inform us that it was first reported in Wuhan on Dec. 31, 2019, but I wonder how long that reference will remain in place.
I commend the WHO's efforts to track global outbreaks such as this one and provide a matter of record on how to respond. But a lot of its response appears to be political rather than scientific. I've read some of its materials on previous outbreaks such as SARS, and the bulk of the reports appear to be based not on the disease but on how the WHO responded to the disease. Self-referential.
Here in Hong Kong, we are responding by wearing masks in crowded places, avoiding large gatherings, taking public transport as little as possible, and working from home. Like Singapore, we have the SARS experience to encourage us in this direction. It appears the West is rapidly going to need to learn those lessons, too.
Stocks will surely recover very rapidly as soon as the social disruption and the strict travel bans end. But we simply don't know how far this disease will reach, and therefore when it will end. The bans put in place will take time to repeal. Meantime, a large chunk of China's factories still remain idled, supply chains are in chaos, and that economic disruption is spreading faster than the virus. Investors beware indeed.