Coronavirus Takes a Toll on Global Markets

  • Feb 27, 2020 AEDT
  • Team Kalkine
Coronavirus Takes a Toll on Global Markets

The recent outbreak of the Chinese pandemic is wreaking havoc not only in China, but across the world. Some researchers opine that the Covid-19 epidemic could become a major disrupting pandemic of the globalisation era, reigniting doubts over the steadiness of the global economy.

Coronavirus, often referred as COVID-19 has already claimed over 2.7k lives and there are over 81k confirmed cases, globally. This has revived the fear that the virus might leave the world economy distorted, at least till medical science, global organisations and governments come up with robust solutions and cures for it.

Coronavirus- Start Off and Consequences

On 31 December 2019, the World Health Organization (WHO) came across cases of pneumonia of an undetermined cause, discovered in Wuhan City, Hubei Province of China. After a week of contemplation and research, Chinese authorities confirmed that the sudden illness was a result of a new coronavirus, the deadly causative virus eventually named as COVID-19.

Reports from all over the world suggest that the virus has spread its wings in over 30 countries, the most recent being Kuwait, Italy and Iran. There are anticipations that the spreading spree will continue for a while, unless robust measures are not put into place.

Consequences have been vast and grim-

  • The epicenter of the virus, China had to lock down cities, rethink application of wartime measures, shutdown factories and put a halt to export and import activities
  • Countries like the United States of America and India sent special conveyance options to evacuate their citizens from the Chinese affected areas
  • Besides deaths and confirmed cases, there are environmental challenges that are expected to take a toll with time
  • The Chinese economy may be subject to a drastic downward spiral in Q120, with its economic growth likely to slip to ~4.5 per cent- the slowest since the Great Financial Crisis of 2008-2009
  • There are speculations that the outbreak could easily wipe more than $1 trillion from global GDP
  • Workplace absenteeism, lower productivity levels, sliding travel, unsettled supply chains and reduced trade and investment are on the charts

Coronavirus Takes a Toll on Global Markets

Global markets have been grappling with the coronavirus impact, which is obvious, given the vast consequences discussed above. As deciphered, there is a lot of grim speculation that businesses are bound to suffer which has a direct impact on investor behavior. The nervousness is real and can be justified by the following incidents that have triggered usual share market activities- a global sell-off was witnessed on 24 February 2020-

  • 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 6,978.3, representing a drop of 2.3 per cent

After the week started on a slumped note, it continued its downward trajectory on Tuesday, 25 February 2020, wherein the Dow Jones Industrial Average closed down 879 points. Tech-focused Nasdaq followed suit, slumped by 255 points whereas TSX/S&P Composite Index (Toronto) was off by 385 points.

You would be wondering- what has suddenly caused these stock exchanges to take a downward spiral route? Why is investor sentiment weak? What’s making the market volatile? The answer is simple- the increasing possibility that the virus that causes COVID-19 could disrupt the global economy by reducing consumer demand for a wide range of goods and services and knocking out supply chains.

Moreover, the sudden surge in cases of the coronavirus this week, from Iran and Italy (95 and 322, respectively) have increased the fear and the world is finally waking up to the fact that this issue could go on for a while and impact Chinese and global economic growth.

The closure of bars and restaurants, unwillingness of people to travel, locked down situations and a steep slump in manufacturing is bound to impact the global economy. Even the share market volatility and pro-longed nervousness is not a good sign.

Treasury Bond Yields Hit Record Low, What’s the Safe Haven Behavior?

Now that we understand the extensive and adverse consequences of the coronavirus outbreak on global exchanges, it will be interesting to understand its impact on the Benchmark 10-year Treasury bond yields hit a record low on 25 February 2020 (crossing the aftermath of the United Kingdom’s Brexit’s debacle).

Before proceeding, we encourage you to read the investing pioneer, Warren Buffett’s optimistic take on the coronavirus outbreak here- Stocks Sell-Off Amid Coronavirus? Warren Buffet’s Take on the Chinese Pandemic.

Investors are noticeably continuing to buy safe haven assets amid concerns that the coronavirus spread might escalate into one of the biggest global pandemics. What should be noted here is the fact that the low treasury yields are not just indicating slower growth in the United States of America, but overall slower global growth.

With the upbeat performance of global equities markets confounding investors, they have been flocking to safe haven assets. This is clear as gold is at a 7-year high and even bonds are surging.

But what’s the concern here is that- will this trend last long? Experts suggest that it is too early to decipher the long-lasting impact of the pandemic. What’s understood is the fact that in the near term, global growth is bound to take a slump.

We want to give you another fact- Even Bitcoin and other cryptocurrencies had a brutal phase, making investors question the stance of safe haven assets amid slumped periods of the market.

Bottomline

With daily lives, business relations and climatic situation worsening in the bleakness of the coronavirus outbreak, there is a clear sense of nervousness across the globe.

Some market experts opine that by the end of 2020, coronavirus will be remediated while another section believes that there needs to more research and time given to analyse its outlook. Whatever situation occurs, there definitely is a challenge for medical participants, global unions and governments to work together to put a stop to this viral pandemic.


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