‘Safe Haven Purchase Is in Play’: Refuge Assets Rally on Coronavirus Fears

January 31, 2020 Updated: February 2, 2020
FONT BFONT SText size

Safe-haven assets such as U.S. Treasuries and gold have rallied while risky assets like stocks and emerging market currencies have lost steam, as jitters surrounding the coronavirus outbreak ripple through markets and fears of a global pandemic grow.

“In the last two weeks, there’s been safe-haven buying of U.S. Treasuries significant enough to drive down yields 20 basis points,” said David McAlvany, CEO of the McAlvany Financial Cos. “That is telling you something about people having an underlying concern.”

Spencer McGowan, head of the McGowan Financial Group, said, “With fears of the coronavirus impact, Chinese and global disruption, we have moved from euphoria and new highs to stock fears.”

Stocks worldwide have shed more than $1 trillion in value since Jan. 21, when the first case of a coronavirus infection was confirmed in Washington state.

Epoch Times Photo
This graphic shows the MSCI ACWI Index, a global equity index that represents a set of large- and mid-cap stocks across 23 developed and 26 emerging markets. (Reuters)

Currencies such as the Japanese yen and Swiss franc, seen as a kind of refuge in turbulent times, have both been beneficiaries of investors seeking safety. The dollar fell against the yen from 110.19 on Jan. 21 to 108.33 on Jan. 31.

Precious metals also have been subject to breakouts. The spot gold price rose from $1,547 per ounce on Jan. 21, while trading on Jan. 31 saw prices near $1,590.

“Gold can be driven higher off of geopolitical uncertainty. It provides growth and positive performance when other assets are selling off,” McAlvany told The Epoch Times. “The benefit of owning gold alongside other more traditional assets is you increase total returns and decrease volatility by having an asset which behaves in a countercyclical trend. Gold acts like insurance.”

‘Unprecedented Public Health Threat’

The virus, with its epicenter in China, has so far spread to more than 20 other countries and regions. As of Jan. 31, China had reported more than 200 deaths and thousands of infections, although experts point to prior data manipulation and information suppression by the Chinese regime and insist official figures can’t be trusted.

U.S. officials announced Jan. 31 they would bar entry to foreign nationals who have been in mainland China in the past 14 days, in a ramp-up of efforts to stem the spread of the virus. Earlier, federal health authorities ordered the quarantine of 195 Americans who had been evacuated from China.

Epoch Times Photo
Quarantine workers in protective suits check documents as tourists from the Wuhan area exit a plane taking them home from Bangkok, Thailand, at Wuhan Tianhe International Airport in Wuhan, on Jan. 31, 2020. (Chinatopix via AP)

“While we recognize this is an unprecedented action, we are facing an unprecedented public health threat,” Nancy Messonnier of the U.S. Centers for Disease Control and Prevention, said in a Jan. 31 conference call.

“We are preparing as if this is the next pandemic.”

Epoch Times Photo
This illustration provided by the Centers for Disease Control and Prevention in January 2020 shows the 2019 Novel Coronavirus (2019-nCoV). (Centers for Disease Control and Prevention via AP)

A Disease That Dislocates Markets

Wall Street’s major averages tumbled more than 1.5 percent on Jan. 31, sealing its worst week in six months.

Asia-Pacific shares outside Japan extended their fall, appearing set for their worst weekly loss in a year, of 4.6 percent. A 2.3 percent dive Jan. 30 was the sharpest one-day loss in six months.

Hong Kong’s Hang Seng drifted and has shed 9 percent in two weeks, while Korea’s Kospi had its worst week in 15 months, losing 5.6 percent.

In currencies, most of the action last week was nervous investors selling emerging market currencies for dollars and yen.

A range of commodities, from copper to soybeans, were hammered by worries over Chinese demand.

Oil recently hit its lowest mark in three months as the coronavirus spread threatened to curb demand for fuel.

“The steady drumbeat of negative headlines, combined with government reactions to the spread of the virus, is still roiling markets a bit, and it’s hard for markets to find that stability,” said Brad Bechtel, managing director at Jefferies in New York.

Epoch Times Photo

Officials at the Federal Reserve have expressed concern about the impact of the virus.

“It’s a very serious issue,” Federal Reserve Chairman Jerome Powell said at a press conference after the conclusion of the central bank’s two-day policy meeting on Jan. 29.

“We are very carefully monitoring the situation,” he said. “There will clearly be implications, at least in the near term, for Chinese output, and I would guess for some of their close neighbors.”

The virus outbreak comes as China’s economy is already growing at its slowest pace in nearly three decades. The U.S.–China trade war took a toll on the country’s exports in 2019, and China’s economic troubles may be more severe than official data indicates, according to experts.

“This is like Chernobyl in a sense,” author and China expert Gordon Chang told The Epoch Times, referring to the nuclear accident that occurred in the Soviet Union in 1986.

If the panic continues until April or May, it will have an “enormous effect” on the Chinese economy this year, he said.

“If this isn’t brought under control quickly, you’ll have factories leaving China,” he added.

“I don’t know where coronavirus goes from here, but the uncertainty factor changes the perception of the marketplace of where you should be putting your money,” McAlvany said, “and you can already see the footprints of dollars moving to safe havens.

“The Treasury market has been radically impacted. … I look at a 10-year Treasury note moving 20 basis points in two weeks as radically being impacted. I look at gold stabilizing relative to silver, moving up relative to silver’s decline, as a clear signal that the safe-haven purchase is in play.”

Epoch Times staff member Emel Akan and Reuters contributed to this report.

Follow Tom on Twitter: @OZImekTOM