Coronavirus fears lay an impact on stock markets. But this does suffice to be a cause of panic for investors. Markets frequently undergo cycles such as these.
Covid-19 is frequently being referred to as Coronavirus. It is now spreading beyond China at a pace that is best defined as alarming. BSE Sensex has taken cues from the global markets and lost 1,448 points on 28th February. On 2nd March, the market fell further by 150 points and the volatility is expected to continue for some time to come.
Why does fear prevail in the markets?
Indian markets undoubtedly experience a degree of fear over Coronavirus, which the WHO has declared a public health emergency of international concern. Coronavirus has laid impact stock markets globally. This makes it difficult for Indian stock markets to be resistant to the impact.
Nations and stock markets harbor the fear of a quick spread of Covid-19 beyond China.
Covid-19 started from Wuhan in China. Till February 19, there were just 3 casualties beyond China. In the 10 days that followed, the number grew to 104. At least 58 countries are now affected by the coronavirus menace. Over 100 K people are now infected worldwide and the casualties exceed 3K.
The effects are more prominent in China than anywhere else. Economic activities in a few of the most important production centers have been surprisingly low.
Nearly 24% of global value-added imports are from China, and the nation accounts for 16% of global GDP. China’s Q1 earnings will be affected by Coronavirus, and the impact will show over global markets as well.
The impact over the global GDP is likely to be in the line of 0.5%. Among the affected industries are travel and tourism, which amounts to 10% of global GDP. Flights are being canceled and airfares slashed.
If we see the long term perspective, Coronavirus should not be a cause of concern for stock markets. But over the short term, it will render its effects.
Global and Indian markets alike have rallied a lot in recent times, with surplus liquidity being the driving force behind the development. Coronavirus is a sufficient factor to bring about a change. Till now, there has been a correction of 7-8% owing to Coronavirus. When we consider the historic perspective, we come to see that this is the norm. Prior epidemics such as SARS and Ebola bought about a correction of 5-12% in global markets. This leads us to believe that there is further room for correction.
There is a disproportionate dependence on the global economy over goods imported from China. Various countries are expecting to put up with supply shocks over time to come. When this results in demand destruction, the global economy and recovery processes will be affected further still.
There are chances that certain global organizations will then come by as global non-performing assets (NPAs). But this too will be a temporary situation.
When the SARS outbreak had occurred, the US S&P 500 had lost 3.6% while the outbreak lasted. But after a year following the outbreak, it gained 33%. In the same way, whine BSE SENSEX lost 10% during the phase, it gained a staggering 83% following the outbreak.
Global and Indian markets, in general, recover from such phenomena within a matter of 3 to 4 months.
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