Market Sell off Continues, Global Exchanges Bleed as Coronavirus Fear Intensifies

  • Feb 29, 2020 AEDT
  • Team Kalkine
Market Sell off Continues, Global Exchanges Bleed as Coronavirus Fear Intensifies

Reaching a decisive point and bearing the potential of being perhaps the worst pandemic of recent times, the Coronavirus (COVID 19) plight continues to spread fear and nervousness across economies. Countries around the world are continuing to battle this dangerous virus and current statistics do not seem good.

As on 28 February 2020, more than 84k cases of Coronavirus have been confirmed across the world, with the death toll increased to over 2.8k. Recently, Iran and Italy have become major centers of the dangerous infection (approximately 245 and 655 confirmed cases, respectively). Reports suggest that people travelling from these places are spreading the virus further afield. Besides this, the world’s biggest economy, the US has also joined the bandwagon with 60 cases recorded.

However, a slight silver lining with around 36k recoveries registered does exist, but is it enough? Time will decide.

Coronavirus- Outbreak and Impact

The current outbreak of coronavirus disease was first reported from Wuhan, China, on 31 December 2019, after peculiar cases of pneumonia were registered in the region. After vigilant scrutiny, Chinese authorities confirmed that the underlying cause of the illness was a coronavirus (later named COVID 2019), a new strain that has not been previously identified in humans.

The zoonotic outbreak has given medical science a challenge that needs to be addressed at the earliest as the virus continues to impact not only China but other parts of the world too (over 50 countries remain affected). What’s worrisome is the fact that up until now, no robust cure has been made available to most ailing economies.

So, what are the repercussions of this deadly pandemic?

  • In humans, it has been causing pneumonia, kidney failure, acute respiratory syndrome and even death.
  • The Chinese economy is on a steep downward spiral, with experts suggesting that the outbreak could lower China's economic growth to 5.6 per cent this year and cut global growth by 0.1 percentage point.
  • Locked down cities and wartime measures are being given a thought in China, the epicenter of this crisis.
  • A wide range of sectors are suffering- manufacturing, travel and tourism, retail, consumer discretionary providers, to name a few.
  • Global business sentiment stands weak as people are unable to facilitate office visits, travels, export and imports.
  • With respect to share markets, they are waking up to shell shocks every morning as a global sell off this past week has been clearly demonstrating the ramped-up investor nervousness.

Global Market Crisis- Should We Call it a Virus Sell-off?

The last week saw stock market exchanges across the world falling sharply amid fears that the continuing and increasing travel restrictions will prevent business activity.

Let’s check some latest figures-

  • On 27 February 2020, the The Dow Jones Industrial Average fell 4.4 per cent. It is now 12 per cent below its record high.
  • On the same day, the S&P 500 and Nasdaq Composite posted their biggest one-day loss since August 2011
  • Following the market’s downward trajectory, on 27 February 2020 Tokyo’s Nikkei 225 lost 3.08 per cent, Hong Kong’s Hang Seng Index plunged 1.98 per cent and the Chinese benchmark Shanghai Composite Index shed 2.23 per cent.
  • On 28 February 2020, the Australian share market, ASX, dropped hard, wiping out all of the benchmark's gains since the start of the year. It closed lower by 3.4 per cent at 6441.2. This marked the worst 5-day fall since 2011.

What’s Propelling this Sell off?

Why are world markets headed for the harshest weekly fall since the Global Financial Crisis of 2008-2009? The answer is simple, yet dangerous- COVID 19. There are increasing worries that the continuous and swift spreading of the coronavirus could turn into one of the worst pandemics of our time and ultimately derail global economic growth.

An economic paralysis is expected not just within but even outside China, and it is bound to trigger equity performance, for the worse. There is an obvious demand shock generated by the coronavirus in times when the supply constraints are forced to remain stubborn.

In countries like Australia, where the share market was set to celebrate its reporting season, there was quite some disruption with companies forced to announce sudden downgrades in their production and profit capabilities alike. Consequently, the coronavirus demoralised investor sentiment as share prices are reflecting abrupt uncertainty.

What’s the Investor Rescue Amid COVID 19?

It is evident that thousands of investors have dumped equities in the current nervous atmosphere. However, let us acquaint you with a few interesting takeaways that will fill some optimism in the times of crisis-

The Oracle of Omaha and billionaire investor Warren Buffett opines that the sell off is just another down phase and it too shall pass. The stock market is cyclical, one should remember. Investors should actually tap stocks that are priced low and are bound to do well when the market is better positioned. Long-term investing should remain key and disruptive forces should not make one too nervous.

One can consider ETFs and cash in portfolios too, supplementing stocks for a while. Hedging can be a true rescue. Investors have been flocking towards safe haven assets, like gold, with its prices rising consistently.

Precious metals act as an effective portfolio diversifier, enact a shield against inflation and also serve as a store of value. Some reports suggest that gold prices have been surging back above USD 1600 for the first time in almost 7 years amid COVID 19 fears.

What do Experts Suggest?

There is a divided set of opinion for the ongoing coronavirus, as it is too early to conclude its aftermath to global markets and economies. Some experts believe that the risk is only in the short term and the impact of the virus will eventually subside in the coming months. Moreover, patient recovery numbers seem to be increasing recently.

On the flip side though, the pandemic tag to the coronavirus has started to seem legit, opine few experts. Countries like Australia believe that the risk of a global pandemic is very much upon us and necessary steps need to be undertaken soon.

There are hopes that nations will work together to fight the coronavirus holocaust, the pandemic of fear will abate, and the market will bounce back. How much of this will come true and how soon, time will tell!

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