Asian markets came under pressure during February as coronavirus continued to tighten its grip. By the end of February, South Korea was second only to China in terms of diagnosed cases of coronavirus, with 3,150 confirmed cases. Japan was second with 230, followed by Singapore and Australia with 98 and 24 cases respectively.
- The Japanese yen rose against the US dollar
- Japan’s economy shrank by 6.3% YoY in Q4 2019
- The Bank of Korea confounded expectations by maintaining its monetary stance
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Asian markets came under pressure during February as coronavirus continued to tighten its grip. By the end of February, South Korea was second only to China in terms of diagnosed cases of coronavirus, with 3,150 confirmed cases. Japan was second with 230, followed by Singapore and Australia with 98 and 24 cases respectively.
“This is affecting global supply chains ... when planes aren’t coming in … planes aren’t going out” (Australian PM Scott Morrison)
The Japanese yen – which is often regarded as a safe-haven asset during periods of market instability or economic decline – strengthened against the US dollar, spiking above ¥112 before ending the month just above ¥108.
Japan’s economy contracted at an annualised rate of 6.3% during the three months to December. Growth was dampened by October’s consumption tax increase, the trade conflict between the US and China, and the impact of Typhoon Hagibis. Factory output dropped sharply in February, falling at an annualised rate of 2.5%. The economic outlook has been clouded by concerns over the spread of coronavirus, particularly with the Olympic Games due to start in a matter of months.
Exports declined at an annualised rate of 2.6% during January, following December’s fall of 6.3%. Shipments to the US fell by 7.7%, while exports to the rest of Asia dropped by 3.2%, undermined by lower demand from China and South Korea. Investors fear a more substantial decline in February as coronavirus affects demand from China and elsewhere in the region. The Nikkei 225 Index fell by 8.9% during February, while the Topix Index declined by 10.3%. The TSE Second Section Index – representing medium-sized companies - dropped by 14.5%.
Australia’s Treasurer Josh Frydenberg warned that coronavirus is likely to have a broader and more significant impact on Australia’s economy than the recent bushfires. At the same time, Prime Minister Scott Morrison observed: “This is affecting global supply chains ... when planes aren’t coming in … planes aren’t going out”. The ASX All Ordinaries Index fell by 8.6% during February.
South Korea’s economy is coming under pressure from the coronavirus, and policymakers at the Bank of Korea (BoK) highlighted contracting consumption and a deceleration in exports caused by the outbreak. Central bank officials believe that South Korea’s economic growth will be affected, although uncertainties remain high. Nevertheless – and despite widespread expectations of a cut – South Korea’s key interest rate remained unchanged at 1.25% in February. The Kospi Index fell by 6.2% over the month.
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