As the coronavirus has spread more widely out of China, investors have taken note. At the market open on Monday, the three major U.S. stock benchmarks slumped 3% lower. Meanwhile, U.S. bond yields are plunging with the 10-year note at 1.36%, its lowest yield since 2016, and the 30-year Treasury at 1.82%, a record low.
And the long-term impact of the virus may be greater than thought, Bob Browne, chief investment officer of Northern Trust, told ThinkAdvisor. “We think it’s premature to assume [the virus] is a blip” in global markets, he said.
He explained that some geopolitical events, such as the U.S. assassination of the Iranian general Qasem Soleimani, can pass through the public view quickly, especially when starting with a sound economy and bullish market. “But [the virus] is different because it’s affecting the second largest economy in the world,” he says. This means it’s affecting global tourism, which is 10% of world GDP, and downstream that affects casinos, airlines and cruise ships as well as suppliers.
And the greater a firm’s ties to China, the higher the risk. This includes Apple, which has 17% of its sales in China and significant manufacturing there. The company announced in mid-February that it would fall short of quarterly revenue expectations due to the virus.
But for the most part, U.S. stocks seem somewhat fenced off, especially the other big tech firms such as Amazon, Google and Facebook. This is one reason Northern Trust added 3% to its overweight stance in U.S. stocks, moving some investments from emerging markets and developed markets outside the U.S.
Also changing, especially now, will be global companies — including those in China — redistributing supply chains to not have “the proverbial eggs in one basket,” Browne says.