The number of new corona virus cases may have reduced drastically in China where the infection reportedly started first but apparently in many other countries of the world not only new cases are being reported but their number is growing up every passing day. The virus has posed severe threat not only to the human lives that are infected and others through interface or contact with them but has also contaminated the global economy and financial markets and yesterday’s stock market crash was only a reflection thereof.
The fear is so intense that the entire rhythm of everyday life and work cycle is disrupted. People are apprehensive to move around – be it the work place or a theatre or public transport system or even a favourite sport event. This is going to affect the demand for consumer durables in the markets and production of FMCGs and intermediary goods in the factories. The pace of economic growth of the global economy is already reeling under pressure due to many factors including persistent slow down in the Chinese economy, increase in Geo-political tensions and subdued investment sentiment in various developed and emerging economies. The corona virus impact will only add up to the woes of the world economy.
The rising uncertainties have led to an increased volatility in the stock markets around the world. However, it was the mayhem that left the investors and the companies gasping for breath. The plunge as seen in the major stock indices was deep and at that time there was profound nervousness about how and when the markets could be revived.
From Retail Investors to the FFIs, the Panic gripped all over
The panic selling on the major stock exchanges of the World was indicative of the general outbreak of lack of faith in the institutional set up – be it at the corporate, municipal bodies or the government, to be able to contain the pandemic of corona virus in any reasonable period of time. The contagious nature of virus coupled with a lack of suitable cure or vaccine makes it extremely difficult to contain the pandemic which has already infected thousands of people across more than 110 countries.
In such circumstances, it was considered as prudent to follow the age old and time tested advice – “prevention is better than cure”. Hence the governments and other authorities are asking people to keep away from mass gatherings, offices are encouraging their employees to work from home, cinema halls are closed and sport events cancelled. Educational Institutions are shut down and travelling abroad is suspended in many countries. And this is too much of distortion indeed that any economy may probably grapple with.
All this gloomy scenario has taken a toll on the investor confidence and the panic selling was seen on the major stock exchanges of the world. When Dow tanked 2300 on Thursday, it was recorded as the worst performance since Black Monday in 1987. Even the S&P 500 plunged by over 9% to mark an entry into the bear market territory which was the worst 52-week low as compared to the historic previous low of January 2009. NASDAQ too closed down 9.43% and it was its worst day since Apr 14, 2000. The BSE and the NSE which already had a deep plunge on Thursday, were rumbled after Nifty50 index crashed 10% to 8,624 and the BSE too plunged 9.4% to 29,687 in early trade on Friday. Markets panicked as Trading was halted in both these markets for 45 minutes first time in last 12 years trading in Indian markets.
Respite after a nervous selling spree?
A nervous selling spree seemed to pause, however, as the investors weighed the potential escalation in the economic cost of the corona outbreak against the outcome of the prompt support measures taken by the monetary authorities and respective governments as the balancing act.
There were signs of recovery seen in the US, French, German, Italian and Indian and certain other securities markets after various positive or assertive moves were made either by the respective Central Banks or other authorities. The action was fast and it helped markets recover at least from the shock they suffered initially. Whether it was an announcement of the possibility of the Democrats to strike a deal with the Trump administration on measures needed to be adopted to deal with the crisis in the US, a move to raise the magnitude of pledges to reach out to distressed companies in Germany or an announcement to work out a big spending package in Japanese economy, well, any move that was directed to allay the corona fear was welcomed by the investors and so some improvement was seen at the major markets towards the close of the day.
Coordination at Domestic and Global level holds the Key
As it seems, the investors are not only nervous but they are confused too. Despite a foray of corrective measures taken by the central banks and the governments in many countries, there are apprehensions as to whether the economic activity will revive anytime in the near future at least till the corona virus is fully brought under control. The industries that are worst hit, such as aviation, tourism, manufacturing and practically every sector where production depends on the raw material or equipment or tech-support from China such as Pharma or FMCG, shall revive only when the underlying problem is successfully tackled. You may reduce the interest rates, but the businesses shall expand only if they see the possibility to operate their plants through adequate supplies of inputs and the deployment of the manpower and are confident to find a market where they can sell their products
There are lessons for the World economy from the corona outbreak. Too much reliance on a single nation in the global supply chains is a bad idea. Nations must not only improve coordination between governments and institutions at the domestic level, but also have more dialogue and cooperation with other countries too in order to explore better or at least similar options for setting up projects or supply chain facilities. Nations must also spend in pandemic preparedness. The health of a nation’s economy is highly dependent on the health of its people. This is important as the world becomes increasingly interconnected.