Stocks Sell-Off Amid Coronavirus? Warren Buffet’s Take on the Chinese Pandemic

  • Feb 26, 2020 AEDT
  • Team Kalkine
Stocks Sell-Off Amid Coronavirus? Warren Buffet’s Take on the Chinese Pandemic

As China wrestles against the mighty novel coronavirus (COVID-19), economic damage over the world is only mounting. With over 80,000 confirmed cases of the pandemic that emerged in the city of Wuhan, China in December 2019, fears that the impact will be dire is spreading to every nation, big and small. What’s even terrifying is the fact that nearly 2,700 people have died of the COVID-19 across the world.

China’s economic growth is expected to slip to ~4.5 per cent in Q120 and could be the slowest since the Great Financial Crisis of 2008-2009. Locked down cities, wartime measures, factory shutdowns, halted export and import are only a few consequences that has been impacting day-to-day lives and businesses.

Moving on to the share market, the coronavirus has justified the opinion of a few experts who believed that that there would be a hit to sales and production that would make investors nervous and lead to a global sell-off. Well, this week demonstrated that the negative impacts of coronavirus is rattling investors nerves- a sell-off has been witnessed.

Let’s dig in-

What is a Sell-off?

Brushing on our concept of a sell-off, it is regarded as one of the most dramatic events of the stock exchange and reflects investor psychology. A sell-off takes place when a huge volume of securities is sold in a short period of time in a stock market, consequently resulting in a decline in the price of the security (law of supply and demand).

In a sell-off, a huge number of investors opt to unload/ sell their respective holdings without any offsetting increase in the number of buyers.

The causes of a sell-off could be disappointing reporting season, paced competition, threat of a tech disruption or what’s going on currently- a natural disaster.

Recent Sell-off Amid Coronavirus

The international financial markets witnessed perhaps one of the steep declines in years on 24 February 2020, post an increase in detection of coronavirus cases rekindling fears about economic slowdown. The US Dow, the S&P 500 and UK’s FTSE 100, all posted sharp declines. In Europe, Italy reported its worst outbreak of the COVID-19 (over 200 confirmed cases) resulting in a decline of Milan’s stock market.

  • The US Dow- lost 1030 points or 3.5 per cent to close at 27,961
  • The S&P 500- down ~3 per cent or almost 100 points
  • UK’s FTSE 100- closed 3.3 per cent lower
  • S&P/ASX 200- settled at 6,866.6, representing a drop of 1.6 per cent

The sharp global sell-off is a direct consequence of the fact that the coronavirus outbreak has spread to over 30 countries. Its potential to undermine global growth is rapidly increasing. This is making investors nervous about their prior decision to tap the then-seeming lucrative stocks, this resulting in a sell-off.

Another reason responsible for the sell-off was the fear about how the COVID-19 could disrupt the supply chains and growth of companies across the world. This is because high-profile corporations like Apple and Disney have noticed disruptions in their businesses because of the virus.

The viral outbreak is a threat to global economic growth and impairs profits and revenue for a wide array of businesses- from technology to retail to travel. Experts opine that this market volatility is expected to continue in the near term and would be principally driven by global influences.

Warren Buffet’s Take on Coronavirus

Global stocks are noticeably plunging after the number of virus cases outside China surged, particularly in Italy, South Korea and Iran.

However, the Oracle of Omaha and investing magnate, Warren Buffett opines that his long-term outlook amid the pandemic remains unchanged. Let’s dig into the billionaire investor’s take on the COVID-19-

Like the rest of the world, Mr Buffett acknowledges the coronavirus outbreak to be “scary stuff” for businesses and investors. He recently said that the recent coronavirus disease in China has definitely slowed economic growth and sparked stock market losses in the recent sessions.

But, his long-term optimistic outlook on stock has ““not changed”. He believes that the outbreak is now “front and center” the main threat to US companies and the overall economy, which is why the US economy has become relatively softer than it was a few months ago.

Citing the scenario of his own firm, Berkshire Hathaway, Mr Buffett stated that the business could be negatively impacted by the coronavirus, but the US economy would remain strong, thus the optimistic outlook.

Mr Buffett is world famous for sticking to his long-term investing despite micro and macro-economic disruptions. He has always vouched by the belief that investors should not pry too much over calamities as they pass. Moreover, when the market is down, investors should practice constant vigilance and tap the right stocks that can reap benefits once the market smoothens.

His philosophy for the recent coronavirus also centers around these key principles, ones that he has been practicing since decades.

As one can infer from the above, Mr Buffett actually sees a positive in the ongoing market sell-off. He believes that this is not the apt period to sell stocks, even though the threat of the pandemic looms over the world. He further stated that his firm could possibly end up buying stocks at the lower prices caused by the coronavirus.

Bottomline

It is evident that we are currently witnessing a stock market rout with the coronavirus disease spreading its reach well beyond the Chinese borders, especially in the recent days, raising fears about its economic impact on several continents. The impact on daily lives and businesses of contemporary world is a subject of fear and confusion.

Scientists are thriving hard to find a cure for the disease and there have been a few recoveries as well, though there remains a lot to be done. Amid this roller coaster, share market’s optimism (pertaining to the recent sell-off) is being spewed by investing experts like Warren Buffett, who believes that the pandemic should be leveraged as a good money-minting opportunity.


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