Company / Analytics

Analytics, 25 February 2020

Coronavirus: Markets' reaction or reality?

Since the outbreak of the novel coronavirus, markets have experienced various reactions. But it seems the worst is yet to come. If indicators emerging every new week are to go by, we may be far from the worst trading session since the virus outbreak first emerged in mid-January.

This week started with massive selloffs across the world, elicited by spreading coronavirus outbreaks in Italy and in South Korea over the weekend. To these, even the stock market’s biggest darlings have not been immune: Apple, Microsoft, Tesla and others have dropped sharply as investors reacted to news of fresh outbreaks outside China.

On Sunday, a surge in cases of the coronavirus prompted President Moon Jae-in to put the country on its highest level of alert leading to a drop in the South Korean market which ended 3.9% lower. Asian markets sold off.

The spread of the COVID-19 beyond China has raised fears that the hit to global economic growth could be more persistent than investors expected, hampering the prospects for a global recovery in 2020. The Dow finished more than 1,000 points lower on Monday, marking its third-worst daily point drop in history.

The IMF predicts the virus outbreak could reduce global economic growth by 0.1% in 2020 and drag China’s annual growth 0.4 percentage points lower than January estimates.

European stock benchmarks had their worst session in about four years, going down by 3% or more. The FTSE 100 in Britain slid 3%, while France’s CAC 40 was down 3.5%. The DAX in Germany also fell by 3.5%.

The FTSE MIB index, which measures stocks on the Borsa Italiana in Milan, fell 4.6%. The Italian government has locked down at least 10 towns near Milan, the country’s financial capital and a key industrial center, after scores of new cases emerged there.

Oil prices continue to slide. But gold, long viewed as a safe haven in times market tumult, is proving just that. Gold prices and futures are on an upward trend. On Monday, investors piled money into Treasuries and gold whose prices have been rising as those of stocks soar.

As speculators are busy selling, for smart investors, this is a buying opportunity. The epidemic will eventually run its course and economies will resume their growth trajectory.

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