Large falls in the Stock Markets last week reflected investors waking up to the implications of the growing spread of the Covid-19 coronavirus.
It’s stating the obvious, but the coronavirus is likely to have an increasing impact on our lives for at least the next few months.
If you’re an investor, you’re naturally going to feel a bit unsettled and concerned.
Stock Markets hate uncertainty. The falls last week reflect the uncertainty of the potential impact Covid-19 will have on global economic activity.
One of the triggers of the recent falls in markets is the outbreaks closer to home. There is no doubt that there has been and will be a slowdown in trade and economic growth, but the market will eventually “look through” current events and the short-term impacts and will concentrate on the lower company valuations now on offer.
Last week investors were prepared to discount fears of a global pandemic. This was because the impact on global economic growth would not be too severe if a more substantial outbreak of the coronavirus outside of China was avoided.
However, with the increase of clusters notably in Italy, Japan, and South Korea, the risk of a more substantial global slowdown in trade and economic growth has risen and investor sentiment has been affected.
It is likely that economic growth for the first two quarters of 2020 will be much lower as a result. There’s a possibility of a recovery in economic activity as we move into the second half of the year.
What, if any, are the positives?
Governments and central banks are responding to this situation. They’re expected to intervene where they can, to help maintain liquidity and to minimise the risk of recession.
Investors are looking for an interest rate cut from the US Federal Reserve at their next meeting on 18 March. The Governor of the Bank of Japan (BoJ) and the Bank of England, has announced that the central bank would supply liquidity and ensure stability to markets through asset purchases.
The Chinese government has already started its own stimulus operation. Hong Kong, already damaged by the protests, has engaged in ‘helicopter’ money, ie giving money directly to citizens to stimulate their economy.
let’s look past the impact of the coronavirus as much as we can do so for a moment. The overall state of the global economy is in a reasonable shape following an interim US China trade deal. There’s the expectation of greater government spending both globally, and in the UK by the new government.
Large injections of liquidity from the World’s Central Banks are also likely. The stock markets should be helped with this support although volatility is expected for some time yet.
It’s reported that many companies are working full tilt on vaccines. China’s vice minister of science and technology expects that first Covid-19 vaccine in China will be ready for clinical trials by the end of April.
Scientists at MIGAL Research Institute in Israel expect to start producing a Covid-19 vaccine in the next 8 -10 weeks. It’s based on an existing avian coronavirus vaccine and the hope is it’ll receive safety approval in 90 days.
You can read more about the vaccines here