The deadly new coronavirus spreading through China and beyond has battered global financial and securities markets, raising alarm about risks to the real economy that should not be ignored.
The Shanghai Composite Index plunged 8% on Feb. 3 from the Jan. 23 close, as trading resumed after an extended Lunar New Year holiday. Japan's Nikkei Stock Average sank to a three-month low, with industries that have grown more reliant on China -- such as automobiles and manufacturing equipment -- hit especially hard. The retreat notably extended to airlines and other service-sector companies as well.
The initial decline reflected concern over the outbreak's impact on corporate activity and consumer confidence, although selling pressure has eased since.
There remains no clear idea of when economic activity will start returning to normal. Fatalities from the virus in mainland China have exceeded those caused by the 2002-03 outbreak of severe acute respiratory syndrome, or SARS, and the death toll has spread beyond China.
If more countries adopt safeguards such as restrictions on flights to and from China, the global economy could suffer.
Wuhan, the Chinese city at the epicenter of the outbreak, serves as a hub for auto manufacturing and high-tech industry. Many automakers have a presence there, including General Motors of the U.S., Groupe PSA of France and Honda Motor of Japan.
Some of these businesses, unable to resume operations in the Wuhan area after the Lunar New Year break, have extended their shutdown periods. Murata Manufacturing has decided to keep its facilities closed until at least Feb. 9 and said it is "unclear" what will happen beyond that date.
With protracted factory closures possible, companies will need to check their supply chains thoroughly.
The service sector also may feel the impact of the outbreak for some time. Companies already have been struck by a wave of cancellations by Chinese customers, owing largely to China's ban on group tours outside the country. Inbound tourism trends will need close attention.
In the case of SARS, stock prices recovered about half a year after the outbreak began fading, suggesting that investors need not be too bearish. But the world has grown far more reliant on China in the intervening years.
For example, Toyota Motor's new-auto sales in China surpassed those in Japan for the first time last year. The state of the Chinese market may determine the outlook for global corporations.
A continued decline in Chinese stock prices could weaken the many companies there that use their own shares as collateral for loans. The People's Bank of China has taken the extraordinary measure of injecting liquidity into financial markets in an effort to tamp down volatility.
As the coronavirus woes deepen, policymakers worldwide need to engage in clear-eyed debate on ways to counter the negative impact on the economy.