[Exclusive] Global Markets Can Handle Likes of Coronavirus Epidemic, FT's Wolf Says
DATE:  Feb 12 2020
/ SOURCE:  yicai

(Yicai Global) Feb. 11 -- The global response to the novel coronavirus-caused pneumonia outbreak from Wuhan, which has claimed over 1,000 lives to date, shows that markets have the fortitude to handle black swans, Martin Wolf, associate editor and chief economics commentator for London-based Financial Times, told Yicai Global in an exclusive interview.

Below is a transcript of the conversation.

Yicai Global: Both Chinese and global stock markets have quickly rebounded after the selloff caused by the outbreak of the novel coronavirus-caused pneumonia. The world's stock markets, including the Chinese mainland's, rose constantly last week, even setting a record-high growth spurt. What do you think of the stock markets' responses to the development of the epidemic?

Martin Wolf: I think what shows first of all [is] that markets can cope with these sorts of events and more specifically, I think it shows investors have concluded this is not a huge shock for the world economy or even for the Chinese economy. It's an event. It will have some effect. We don't know how big the effect is.

It's an early stage, but doesn't seem very likely. This will be a huge economic event. If you look over the last half-century or so, no disease event, even quite big diseases,  AIDS, for example… [has] had a big effect on the world economy. So I think the markets are being quite sensible. 

YG: What are your thoughts on how China's prevention and control efforts will impact economic growth in the first quarter and throughout this year?

MW: I've seen people suggesting that growth might be down by about [1] percentage point because of this. So instead of six, it will be five. That seems to me sort of at the lower end, but possible. If that's right, you'd expect most of that to occur in the first half of this year.

I assume that the disease will be brought under control by the summer. If that's the truth, the first half's output might be conceivably two percentage points down from what people expected, and then it will pick up giving you an overall 5 percent growth for the year.

Right now, effect on [gross domestic product] will be substantial. A lot of business will have stopped while people see what happens. So I expect the first half of the year to be quite badly affected. But after that, unless it really is a much bigger shock than we now expect, I would expect things to return to normal pretty well. And if this is the case, then you lose enough GDP maybe to get growth down by a percentage point over the year. That doesn't seem to me a disaster.

YG: How do you interpret the coronavirus's effect on the world's capital markets?

MW: The equity markets won't be much affected if they assume this is just a blip in the world economy. Equity markets are valuing the profits of companies over a very long period. So unless there's some toward effect, we can't imagine. I think equity markets have no reason to change very much. It won't be as powerful as other things that might be. And it's going to be temporary, but I would expect it to have the effect of strengthening bonds, a little, lowering yields. A [few] commodity markets will inevitably be down a bit because Chinese consumption is such a huge part of global commodity consumption. And they're relatively short term. They're very influenced by immediate demand.

YG: What kinds of long-and short-term policies can China bring in to prevent the disease negatively influencing economic growth?

MW: That's quite a big policy issue. Then once the disease is brought under control… they're going to have to consider appropriate stimulus, monetary and fiscal policies to get the economy back on track… China's economy needs to be made consistently more competitive, more efficient. China should not, in my view, turn away from the world because of the hostility you're having with the US, but there needs to be big reforms in China in the global context.

YG: China's coronavirus epidemic is still ongoing yet the country's regulators still decided to open the market as planned last week. What do you think of that decision? What principles and methodologies should the regulators follow during special periods like this?

MW: The principle is that markets should be kept open. That's why we have markets, so that people can adjust portfolios, adjust prices in the light of events. We continued to have markets open in the west throughout the financial crisis. We didn't close them. Sometimes some limits are set on how big the fluctuations can be in those sorts of circumstances, but I think in the regulatory approach in most circumstances, markets stay open.

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Keywords:   Novel Coronavirus Pneumonia