Coronavirus Impact on The United Kingdom’s Stock Markets So Far

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Coronavirus Impact on The United Kingdom’s Stock Markets So Far

 Coronavirus Impact on The United Kingdom’s Stock Markets So Far

In the last couple of months investors wealth has eroded drastically. The coronavirus pandemic has depleted nearly 15 per cent of the market capitalisation of the UK stock market. The broader equity stock market index of the UK stock exchange, FTSE 100 which constitutes of top hundred companies, having a presence in domestic as well as international markets, traded at 7,534 on 12 February 2020. Since then barometer gauge of the UK stock market has fallen by nearly 24 per cent in value as the pandemic aggravated in the country. In addition, FTSE 250, which basically reflects the domestic economy, fell by 41.33 per cent in value by mid of March. The outbreak of the contagious virus had led to the bloodbath in the financial markets, which resulted in major sell-offs by the panic-stricken investors. Investors have lost confidence in the markets as they are hurt financially and emotionally.

It not for the first time, the UK stock market has witnessed similar wealth erosions in the past as well. During 2002-03, when SARS broke out, the FTSE 100 fell steeply by more than 30 per cent in a period of six months. However, it took nearly three years for the broader equity stock market index of the UK to recover. During the financial crisis of 2007-08, the FTSE 100 again fell sharply by nearly 45 per cent in a period of nine months, and it took nearly three years for the UK stock markets to embark on the path to recovery.

By the end of December 2019, the world came to know about the novel coronavirus outbreak in Wuhan of China. As, the virus started spreading to most of the countries by mid of March, WHO declared it a pandemic. The novel coronavirus has already claimed nearly 300 thousand lives across the world. The pandemic has wreaked havoc across the financial markets. To make situation worse, the oil prices have been severely impacted by the coronavirus. Historically, any threat to the world economy hits the oil first, while gold, traditionally is seen as a store of value for crucial times and has gone up significantly with many investors looking to park their funds in gold, considering it less risky.

The impact of the novel coronavirus is not only limited to equity and debt markets but has also impacted the currency and the commodities markets by affecting the oil prices. As mentioned earlier, this is not the first time that the markets have lost such amount of wealth. However, it takes a significant amount of time to recover from these kinds of unprecedented shocks, and so is the case going to be with Covid-19.

The investors are worried about the containment measures of the coronavirus and what kind of impact will these have along with the oil prices crash. Markets experts fear a global recession. The IMF has earlier warned that the global economy is likely to shrink to minus three per cent in 2020. With most of the supply chains getting disrupted, the manufacturing sector has been severely impacted. People have already reduced spending in these unprecedented times. The businesses are struggling to meet ends and axing jobs; the economic activities have stopped. All these factors can easily drag any economy into recession.

The stock markets across the globe witnessed huge volatility due to the COVID-19 pandemic. Major sell-offs were triggered out of panic, which became a global phenomenon across the world. Due to the global meltdown caused by the novel coronavirus, stock exchanges across the world have triggered market-wide circuit-breakers to prevent panic-selling. Many circuit breakers were triggered in the markets all across the globe in March.

The growing fear of the novel coronavirus has deeply weighed down the confidence level of investors. As prevention is still the only cure available against this pandemic, people were asked to practice social distancing, and the lockdowns were imposed across the world, including the UK. So far, Covid-19 has claimed nearly 33 thousand lives in the United Kingdom, making it one of the worst scenarios in Europe. The NHS is still under immense pressure as the number of infected people has been growing rapidly.

With nearly 50 days of lockdown and no clarity on its exit strategy, UK’s GDP is likely to fall sharply in 2020. The effect of the coronavirus can be seen in the manufacturing, aviation, hospitality, and leisure sector. Crude prices play a significant role in the global stock markets and prices in the last month fell abruptly due to oversupply of oil. China, the manufacturing hub of the world, the largest consumer of oil, was in quarantine due to the pandemic. In addition, most of the countries-imposed lockdowns, immediately halting the majority of their economic activities. The airline and the shipping industry also came to a sudden stop. Hence, the demand for oil came down drastically. Meanwhile, some oil- producing nations did not stop producing oil, rather they increased their production. Therefore, the prices of oil went south, adding pressure to the stock markets.

From mid of February to mid of March, when the pandemic took a toll on the UK stock market, the price of Brent crude per barrel fell by nearly 40 per cent. In 2008, during financial crises prices of Brent crude had fallen by more than 75 per cent.

Investments through gold stocks have also yielded double-digit returns in the past three months in the UK stock market. Gold traditionally is a method to store value. But in crucial times it has proven to be the safest investment. In February, the Gold was hovering around 1,200 pounds per ounce. As of now, it is up by nearly 20 per cent in just three months’ time.

The economy of the UK was recovering well from the Brexit and general elections until it encountered the novel coronavirus. The government is facing huge challenges in finding solutions and charting out a roadmap to exit from lockdown. The government has announced several rate cuts and stimulus packages to boost investor sentiment in the economy, which again will burn deep hole in the exchequers’ pocket as there is no source of revenue. On the same time, not only the UK but the world is in dire need of a solution to stop the spread of the novel coronavirus, as it can strike back anytime and then the consequences could be worse than the present one.

However, amid the catastrophe in the stock markets, it is well said that there is always light at the end of the tunnel, and whoever is taking a risk in the present scenario, is likely to be rewarded in the long term as once the crisis is over, rebuilding the nation would be the top priority, which can result into the rapid growth of different industries and the economy as on the whole.

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