Company / Analytics

Analytics, 19 March 2020

Exchanges around the world have halted trading.

As the Coronavirus continues to impact the global economy, the Philippines Stock Exchange became the first major market to halt trading. The exchange halted trading on Tuesday for the safety of traders. Though trading was suspended until further notice, the $188 billion-dollar Philippines market plans to reopen on Thursday after measures have been put in place to protect traders. According to The Bangkok Post, a U.S.-listed exchange-traded fund that tracks the Philippine market sank by a record 19.5% on Monday after the bourse announced it was shutting. There are fears other exchanges may initiate shutdowns, after nation-wide lockdowns across the globe and the escalating impacts of the Coronavirus on the global economy.

At the height of the epidemic in China, Chinese authorities extended the Lunar New Year holidays in January and delayed resumption of trade. The Shanghai and Shenzhen stock exchanges were closed from January 23 when Wuhan, the global epicenter of the Coronavirus outbreak was put on lockdown, until February 3. China’s stock markets tanked on the first day when trading resumed. Chinese markets remain open and are operating as normal even as the Coronavirus continues to spread.

Still, in Asia, Sri Lanka followed the Philippines approach and shut down its exchange in a move that analysts say other small emerging markets with limited resources to contain crises such as COVID-19 may adopt. Indonesia Stock Exchange has said they have no plan to shut equities trading but banned short selling in stocks earlier this month.

In the Americas, markets have no plans of closing yet. For example, the New York Stock Exchange issued statements this week saying they plan to remain open even as the three major US stock indices – The Dow Jones, S&P 500 and Nasdaq – continued to plummet. On Monday 15th of March the Dow had crashed 2,998.9 points or 12.93% to 20,186.72, the S&P 500 dropped 11.98% to 2,386.19 and the Nasdaq fell 12.32% to 6,904.59.

While various markets around the world closed trading floors or suspended trade after huge falls in market value, opinion is divided on whether suspending or shutting stock markets in times of crisis is a good strategy.

Though there are precedents, the practice of shutting markets in times of crisis is extremely rare. Past examples include during terrorist attacks of 9/11 when US stock markets closed for almost a week, Hong Kong’s halting of trade in the wake of the Black Monday crash in 1987 and when Greece shut its stock market for about five weeks in 2015.

Following Black Monday in 1987, a survey of international investors by the Hong Kong stock exchange found that the closure had negatively affected the exchange’s international reputation and eroding the market’s reputation in the short term, according to the Bangkok Post.

But exchanges and regulators have largely rejected the idea of temporary market closures. In addition to the NYSE and Indonesia, Korea also has no plans of shutting trading while in Australia, regulators “have a range of measures, some of which have already been taken, to maintain the market’s orderliness and resilience.” U.S. Securities and Exchange Commission Chairman Jay Clayton was quoted by CNBC on Monday to be of the view that stock markets should continue to operate.

Governments are responding with stimulus packages, but some stocks are ignoring them. European stocks rose slightly on Friday after various governments vowed to support their hard-hit economies, some, by doing “all it takes”. Several exchanges already banned short-selling hard-hit Spanish and Italian equities. For example, Germany vowed to spend all it takes to cushion its economy – including at least 550 billion euros ($611 billion) – while the European Commission has unveiled budget flexibility for member states.

The slight rise of European stocks after government interventions is in stark contrast to the U.S. markets where indices including the Dow Jones rejected the Feds emergency rate cuts and continued to tank.

The Chinese Central Bank has also announced plans to inject close to $175 billion of liquidity into the markets.

Whether markets close or remain open, the impact of the Coronavirus, an epidemic the White House predicts could remain in place until July/August, is yet to be fully felt. We expect more market selloffs and that indices such as the Dow Jones will keep reacting to historic demand shocks.

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