City fears that the China flu crisis could spread to the UK, hitting the stock market and the nascent economic recovery were rising on Thursday.
Asian shares tumbled after it was confirmed that the coronavirus “snake flu” has taken 17 lives. The Shanghai Composite suffered its worst day for eight months, falling 3% as the city of Wuhan was put in lockdown.
In London, the FTSE 100 fell below 7550 for the first time in two weeks, before rallying slightly to be off 18.84 points to 7553.08.
The panic, coming just days after China reported its slowest GDP growth for 30 years, increases concern that UK businesses could be hit.
The Sars crisis of 2003 took 1% off China’s GDP and cost the global travel industry around £40 billion. UK analysts say the cruise ships sector, luxury goods companies such as Burberry and Aston Martin and the hotels sector would all be biffed if this virus is as bad as Sars. The outbreak could dent international travel, said Morgan Stanley.
Shares in hotels giant InterContinental Hotels Group fell 3% to 4857p. Mining shares, particularly exposed to China, were also weak.
UK banks with a big Asian presence — HSBC and Standard Chartered — are clearly in the line of fire. Goldman Sachs says that if coronavirus is a Sars-level event it would scrub $3 a barrel from oil, hurting BP and Shell.
Neil Wilson at Markets.com, describing City sentiment, said: “Don’t believe what the authorities tell you and never believe what the Chinese authorities tell you. This will get worse before it gets better. It could not be worse timing and I don’t see how they can stop the spread.”
Stephen Innes, chief Asian strategist for AxiCorp, said: “The cost to the global economy can be quite staggering in negative GDP terms if this outbreak reaches epidemic proportions.”
Capital Economics senior economist Gareth Leather was more sanguine. He said: “If the virus does spread, the worst-affected countries are likely to be those most dependent on Chinese tourist spending. Hong Kong stands as the most exposed. Thailand and Vietnam are also vulnerable.”
While recent UK economic data has been good, analysts note that other clouds are forming.
AJ Bell’s Russ Mould said: “The market’s mood isn’t helped by the Trump administration’s apparent threat of a trade war with the UK over its plans for a digital tax on US online giants.”