Market MovesFebruary 12, 2020

Ray Dalio Says China Virus’ Market Impact Will Be Minimal

The effect of the outbreak has been ‘exaggerated,’ hedge fund honcho declares.

Reported by Larry Light

The news out of China about the coronavirus is still worrisome, with more than 1,000 deaths reported so far, but hedge fund potentate Ray Dalio thinks the disease’s impact on the markets has been “exaggerated.”

And in the not-too-distant future, the epidemic won’t seem that important, according to the founder of Bridgewater Associates, the world’s biggest hedge fund operation (assets: $160 billion). “It most likely will be something that in another year or two will be well beyond what everyone will be talking about,” Dalio told a conference in Abu Dhabi.

In the meantime, he observed, the virus “probably had a bit of an exaggerated effect on the pricing of assets because of the temporary nature of that, so I would expect more of a rebound.”

To date, with the exception of Asia, stock markets around the globe have taken a cautiously optimistic view of the outbreak’s economic and public-health impact. Initially, many exchanges dipped at the prospect that the contagion would develop into a worldwide scourge like the 1918 Spanish flu, which killed an estimated 50 million people. But the non-Asia bourses are back on a winning streak, with the S&P 500 hitting a new high Tuesday, up 4% for the year.

And indeed, Asia’s markets on Tuesday were up (other than in Japan). In 2020 to date, the Shanghai Composite is down 4.9%, while Hong Kong is off 2.6%, and Indonesia lost 5.5%.

Although Moody’s has warned that a coronavirus pandemic could turn out to be a “black swan” as bad or worse than the devilish surprise that shook the world in 2008, other researchers have suggested it will shave only a bit off worldwide economic growth—and that the dip will be reversed shortly thereafter.

Much, of course, depends on how fast the Chinese government can contain and stop the disease, and when China’s restrictions on travel and commerce are lifted. As the second largest economy, China is a major supplier of goods internationally, as well as an ever-growing consumer of imports. Should the country remain shut down for a long period, the baleful economic ripples could end up damaging world trade.

The result would be renewed losses on bourses across the earth’s face.

“What concerns me most if you did have a downturn,” Dalio said, “we are now 11 years in expansion—whether that’s one, two, three years forward, with the larger polarity that exists, the wealth gap and the political gap, I would be more concerned about that.”