As the Coronavirus has become more widespread in Europe and North America, stock markets have reacted. Last week, the Dow Jones Industrial Average, S&P 500 and Nasdaq Composite all fell more than 10% resulting in stocks posting their biggest weekly declines since October 2008 during the financial crisis.
The effects of the new outbreaks have been felt mostly in tourism with supply chain disruptions and weakening demand. The sharp fall resulted in the OECD revising the global economic growth for 2020 to 2.4% (from 3%) — the lowest projection since the financial crisis. This number could be lowered further as cases rise in more countries.
The New York Times reports that many factories in China are still closed following the shutdowns in the country, which began in late January. The OECD says that China accounts for 17% of global GDP, 11% of world trade, 9% of global tourism and over 40% of global demand of some commodities, which shows the ripple effect in global supply chains.
According to the New York Times, China’s National Bureau of Statistics reported figures over the weekend that could signal a decline in its manufacturing economy.
In Europe the most worrying case so far is Italy. “Italy is the obvious one most at risk for two reasons, because the outbreak is taking place there and because it’s the weakest economy in the region,” said Ángel Talavera, head of Europe economics at Oxford Economics.
Beyond Europe, specialists warn about risks for African countries given the close economic and commercial connections to China and the more fragile healthcare infrastructures. Just a few days ago, Nigeria was the first sub-Saharan country to confirm a Coronavirus case. Nigeria is Africa’s most populous country and authorities have said they are increasing efforts for a more effective response to the virus.
As of Monday evening, the figures showed that the virus has infected more than 90,000 people across 73 countries and territories. The European Union’s alert level was raised from moderate to high, said European Commission President Ursula von der Leyen on Monday.
Over the last week, stock markets took a drastic hit performing the worst since 2008. The impact was felt across all industries with some sectors being more drastically affected. In the U.K., the FTSE 100 index fell 11.1% at the end of last week.
The International Air Transport Association released its assessment of the impacts of the virus outbreak showing a potential 13% full-year loss of passenger demand for carriers in the Asia-Pacific region, which could translate to an estimated loss of $27.8 billion (€25 billion) in 2020. Airline stocks are taking a serious hit. Market watchers are looking at American Airlines, which saw a 31% drop in its share price in the last month.
In the other direction, pharma companies and medical supplies groups have seen surges in price as demand for face masks have exhausted supply. Nasdaq reported that shares in Alpha Pro Tech (APT), a maker of surgical masks, rose over 500% last week.
“More so than the health effects, investors are watching for how long the supply chain and corporate earnings will be affected. Will it just be one quarter or even two quarters? You don’t know, and that causes uncertainty,” said Joe Saluzzi, co-head of equity trading at Themis Trading, for Market Watch.
After the financial shock seen in market activity last week, the markets have started this new week in expectation that governments and international institutions are going to act to mitigate economic and financial impacts of the outbreak.
According to Reuters, the G7 is due to release a statement today or tomorrow to pledge to work together to mitigate the damage to their economies from the fast-spreading epidemic.
Market Rebound or Dead Cat?
Some analysts are more positive about potential gains to the market during this coming week as a rebound against the declines. CNBC market proposes a scenario of gains to come, according to historic data. It reports that previous market declines of 10% or more over five trading days since 1990 have shown that equities tend to rebound in the weeks to follow, according to data provided by hedge-fund tool Kensho.
The positive sentiment may come from the fact that investors believe that, amid such circumstances, central bank and government interventions will take place in an attempt to stabilise losses and uncertainty.
On Monday, Asian markets were rising after the Bank of Japan, the country’s central bank, said it “will strive to provide ample liquidity and ensure stability in financial markets through appropriate market operations and asset purchases.”
A good rule of thumb for investments is to buy low and sell high, and this might be the opportunity for saviour investors who managed to cash before the crash to buy back at lower prices. So, what are the best investment strategies when the market feels so uncertain?
LA-based Wedbush Securities analyst Dan Ives said: “that times like these in the market represent “golden buying opportunities” for stocks that could be winning in the long term.” His bet is to look into tech stocks.
“Our long standing view during this last decade… is that we are in the midst of a unprecedented tech bull market with themes such as the enterprise move to cloud computing, a transformational 5G super cycle, EV auto demand inflection, streaming cord cutting paradigm shift, and cyber security all representing some of the major game changing trends poised to change the consumer and enterprise landscape for the next decade,” Ives wrote on Sunday. Among his choices are: Microsoft, Tesla, DocuSign and Uber.
BNP Paribas advised investors to keep an eye on companies based in other Asian countries beyond China as they are less exposed to the impact of the virus outbreak and still considered a safe option to invest. “India is the first one that comes to mind,” the analysts said.
British serial entrepreneur and founder of global financial website ADVFN (www.advfn.com) Clem Chambers believes we are only half-way into the market crash.