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In China – citizens in Beijing seen here on Jan. 23, 2020 – the country’s main stock index fell 2.8 per cent Thursday for its biggest one-day decline since May.

Kevin Frayer/Getty Images AsiaPac

Concerns about the spread of the coronavirus and China’s efforts to contain the recent outbreak are showing up on trading screens, as investors and economists grapple with the potential effects of a contagion that many observers are comparing with the devastating SARS epidemic of 2003.

Overseas stocks fell on Thursday, along with commodities such as crude oil and copper, reflecting either skittish nerves or a dark view of the virus’s potential to hit economic activity in China and elsewhere.

“Just as the global economy showed signs of stabilizing, mounting fears that the coronavirus could become a headwind is dampening investor sentiment,” Priscilla Thiagamoorthy, an economist at BMO Nesbitt Burns, said in a note.

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The S&P 500, the U.S. benchmark, fell as much as 20 points, or 0.6 per cent, early in the day. However, it closed with a gain of 3.79 points or 0.1 per cent, after the World Health Organization said that it is too early to consider the coronavirus an international public-health emergency.

In Canada, the commodity-heavy S&P/TSX Composite Index rose 0.1 per cent, also reversing earlier losses. The energy sector was flat but materials fell 0.3 per cent.

Japan’s Nikkei 225 fell 1 per cent and Germany’s DAX index fell 0.9 per cent.

And in China, where authorities have locked down Wuhan, the city of 11 million people where the coronavirus first appeared, and two other nearby cities, the country’s main stock index fell 2.8 per cent Thursday for its biggest one-day decline since May.

“We believe the selling pressure in part reflects uncertainty ahead of a lengthy market holiday, with much still unclear over the severity of the virus and the velocity of its spread,” Mark Haefele, global chief investment officer at UBS, said in a note. China’s stock market is closed from Friday through next Thursday for the Lunar New Year.

Some of the most dramatic moves appeared related to the outbreak, which has sickened 600 people and killed 18. Copper, which tends to reflect the global economic outlook, fell for a sixth straight day. Crude oil declined 2.2 per cent, falling to a six-week low.

Investors moved into typical havens, including government bonds. The yield on the 10-year U.S. Treasury bond declined to 1.732 per cent, down 3.8 basis points (there are 100 basis points in a percentage point), as prices increased.

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The Government of Canada five-year bond fell to 1.427 per cent, its lowest level since early November and down from nearly 1.7 per cent at the start of the year, reflecting dimming optimism over the commodity-sensitive Canadian economy.

But a number of observers believe that financial market volatility could be brief, given the relatively quick response to the outbreak and, at least at present, a lower fatality rate than that of SARS (severe acute respiratory syndrome) earlier this century.

“We are encouraged that world governments acted swiftly this time, helped by prompt disclosure of the outbreak in China,” Krishen Rangasamy, senior economist at National Bank Financial, said in a note.

He added: “Moreover, lessons learnt from the 2003 event should also make the ongoing response of public health agencies more effective. It’s still early days in the crisis, but note that the fatality rate at this writing was around 2 per cent, compared to roughly 10 per cent for SARS.”

Mr. Haefele of UBS said that SARS lingered as a health risk for eight months but the economic impact on China, and Asia more broadly, was limited to a sharp drop over one quarter, followed by a swift recovery.

The potential takeaway from the coronavirus: “While sentiment may remain depressed in the near term, especially for those sectors most impacted, we view the knee-jerk reaction as a tactical buying opportunity,” Mr. Haefele said in a note.

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He likes Chinese stocks, given expected profit growth of 12 per cent this year. In particular, he believes that tech hardware and e-commerce companies show promise, while the outbreak could continue to weigh on airlines, consumer discretionary stocks, tourism and real estate.

Mark Williams, chief Asia economist at Capital Economics, said that the coronavirus has emerged as a new threat to China’s economy, soon after China agreed to a new trade deal with the United States – making containment crucial to any outlook.

“Cooling property construction is likely to weigh on economic activity in the coming quarters. But with external demand starting to stabilize, the slowdown should be gradual, as long as the coronavirus outbreak is contained,” Mr. Williams said in a note.

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