Mounting fears over the spread of the coronavirus led to another global market sell-off on Tuesday, with investor panic wiping nearly £100bn off the value of Britain’s biggest companies in the past two days.
The FTSE 100 index closed at its lowest level in a year, down 1.9% at 7,018, lowering the value of Britain’s blue-chip companies by about £35bn. It followed a major sell-off on Monday, when £62bn was wiped off the value of the index.
Travel companies have been among the worst hit by the market turmoil. The cruise operator Carnival, whose Diamond Princess ship was the scene of a major outbreak, was the biggest faller on Tuesday, down 5.9%.
Markets across Europe suffered heavy losses and Wall Street was sharply lower as investors digested the implications of the apparent acceleration in the number of new cases in Europe and the Middle East, after it initially spread from the Chinese city of Wuhan throughout Asia.
Italy is the worst-affected country in Europe, and Austria, Croatia, mainland Spain and Switzerland all reported their first confirmed cases on Tuesday. Those reports added to concerns that the outbreak will cause significant disruption across the European economy, with financial services, travel, tourism and consumer goods demand all expected to take a hit.
The outbreak is expected to cause a decline in the personal luxury market of between €30bn and €40bn (£25bn-£33bn), as sales have come to a virtual standstill in China and are suffering in Asia and Europe from the fall in Chinese travellers, according to a report by the asset manager AllianceBernstein and Boston Consulting Group.
Travel companiesare already counting the cost of measures to contain the disease, as well as a slump in demand for travel to affected areas that is expected to push down demand for air travel in the Asia-Pacific region by about 8% this year, according to the International Air Transport Association.
Qatar Airways on Tuesday switched to smaller planes for its flights to South Korea and Iran, both of which are in the grip of serious outbreaks. Qatar had previously cancelled all flights to major Chinese cities until the end of March. United Airlines, the world’s fourth-largest airline by revenue, withdrew its financial forecasts for the year because of the impact on demand for air travel.
The investment banks Goldman Sachs and Deutsche Bank both restricted business travel by their employees to South Korea and the affected areas in northern Italy, as well as advising against non-essential travel.
JP Morgan, Citigroup and Credit Suisse were also among the investment banks which curbed trips to northern Italy.
Mastercard warned late on Monday that the impact on cross-border travel and business could cut two or three percentage points off its revenue growth forecasts for the first quarter, implying a hit of between $78m and $117m (£60m-£90m).
However, Samuel Tombs, the chief UK economist at Pantheon Macroeconomics, a consultancy, said the UK economy could be less vulnerable than most if British people opted for “staycations” over spending their cash abroad.
The US Centers for Disease Control and Prevention said on Tuesday that it wanted companies, hospitals, communities and schools to begin preparing to respond to the virus. The world’s largest economy has so far been relatively unaffected by the outbreak, with 53 cases now confirmed, but the health agency warned that the disease could cause “severe disruption”.
However, businesses and economists still have little clue about how long it will take for the virus’s spread to come under control. Simon Powell, an economist at Jefferies, a US investment bank, warned that a serious spread of the virus to the US would be difficult to contain. He added that Donald Trump’s administration would be unlikely to impose quarantine measures if they threatened economic growth.
“Given the flow of Chinese, Korean and Iranian nationals into North America, a large USA community-based outbreak is increasingly likely,” Powell said in a note. “If not managed correctly, this could significantly rattle markets.”
Larry Kudlow, the US National Economic Council director, told the Washington Post: “The coronavirus will not last forever. The US looks well-contained and the economy is fundamentally sound.
“If you’re a long-term investor, you should seriously consider buying these dips.”