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American financial markets are not immune to a new respiratory virus that has spread quickly from China. Stocks fell sharply today on fears the coronavirus could take a larger economic toll than initially expected. The virus has sickened thousands of people and killed more than a hundred. As NPR's Scott Horsley reports, there are signs that financial fallout, like the virus itself, might not be easily contained.
SCOTT HORSLEY, BYLINE: The sell-off came as China's government moved aggressively to limit travel in and out of the region where the outbreak began. Tens of millions of Chinese citizens are now blocked from traveling around the country at the height of the Lunar New Year, typically a busy travel season. What's more, the government extended the holiday's usual weeklong factory shutdown by an extra three days.
FREYA BEAMISH: Probably, investors are kind of waking up to that story.
HORSLEY: Freya Beamish is chief Asia economist for Pantheon Macroeconomics. She worries the quarantine comes too late to stop the spread of the virus since numerous infected people were already on the road. But she says the travel restrictions will put a serious damper on holiday shopping and excursions.
BEAMISH: It seems like the worst of both worlds for the macroeconomy.
HORSLEY: Investors in Japan thought so. The Nikkei stock market suffered its worst drop in five months today. European markets also slumped. Here in the U.S., the Dow Jones Industrial Average tumbled more than 450 points. That's a contrast with much of last week, when U.S. investors were largely unfazed by the outbreak. When I spoke with chief investment officer David Kotok of Cumberland Advisors a few days ago, he warned investors were underestimating the potential fallout.
DAVID KOTOK: The markets who are saying, in my opinion, this is nothing more than a cold and sniffle - business as usual - are not evaluating the risk well enough.
HORSLEY: Part of the challenge for forecasters is so much about this virus is still unknown. Many are looking for a model in the SARS outbreak of 2002 and 2003, which killed more than 700 people. At first glance, this virus appears to be less severe, but Jay Bryson, acting chief economist at Wells Fargo Securities, says China is a much bigger player on the world stage now, so any fallout will be amplified.
JAY BRYSON: What happened is the size of the Chinese economy has more than doubled over that period of time, and so if it were to slow down significantly because of this, you know, that could have some spillover effects to some of its trading partners.
HORSLEY: In 2003, China was still a newcomer to the global trading system. Todd Lee of IHS Markit says today it's much more integrated with the world's economy.
TODD LEE: Obviously, it depends on, you know, whether or not the government can effectively contain the outbreak, but in terms of the supply chain disruption, it will be much bigger than before.
HORSLEY: Lee says China's economy is also more fragile today. The coronavirus emerged after a period of slowing growth and a tense trade war with the United States. China's consumers play a bigger role in the country's economy now than they did back in 2003, and so far, that's where most of the costs of this outbreak have appeared. Airlines and resort companies have seen their stocks fall in anticipation of reduced demand from China. The outbreak could also make it harder for China to make good on the big purchases of U.S. goods that were promised in the newly announced Phase 1 trade deal.
Every economic storm brings a silver lining of opportunity, though. Some of today's big winners on Wall Street include a company that's working on a vaccine for the coronavirus as well as a firm that makes protective masks. Scott Horsley, NPR News, Washington.
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