CORONAVIRUS (COVID 19) IMPACT ON STOCK MARKETS

Petros Piki, CA(Z), MSc, RPA

The fear of the deadly coronavirus has created massive emotional contagion marred with fear. This emotional contagion is magnifying the Covid 19 impact … Can we blame people. It’s hard to stay calm on conditions like these! On 09 March 2020 World richest 500 lost $239 Billion in one day due to Coronavirus panic.

The stock market is a market driven more by sentiments. The Rating Firm Fitch believes that Coronavirus could trigger exodus of International Capital from Africa and other emerging markets given that most African Governments have few tools available to fight external shocks. The Western markets were calm when China was pummelled by the Virus but once cases start to emerge in the Western world the financial markets aggressively priced covid-19 virus resulting in serious upheavals in the stock markets. A friend in the finance sector was joking to me saying Ebola had a higher fatality rate (40%) than Covid 19 with a fatality rate of 3%-4% but because it happened in Africa market did not as aggressively price that risk … unfortunately this disease seem to be affecting the West more than Africa and the consequences unfortunately will reverberate more in Africa than China and Europe.

This is how major markets have performed

Source: https://tradingeconomics.com/

Equity markets on the international stage have fallen from their recent historic highs but they are still high relative to their longer-term history. In the panic mode Central Banks are cutting rates with Federal Reserve leading the charge with a 50-basis point cut. G7 Finance Ministers have pledged to use Government support (Fiscal Policy) to buttress the markets. As can be seen on the table above all major markets have seen bloodbath except of course Zimbabwe with 106.7% in the green in Zimbabwe Dollar terms in real terms the story is very different (if you factor the ridiculous inflation figures it will be very red). That has been the impact as investors panic and make irrational pricing into the market. It is unfortunate that emerging markets that are considered risk already suffer more losses when investors retreat into safe assets like US Bonds and Gold.

Almost R1 trillion (US$61.62 billion) was wiped off the South African stock market in the week ending 28 February 2020

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The market is being battered because the Virus had hit investor confidence and because of supply side shocks. The Virus had caused companies to lose revenue as supply chains are disrupted. Investors look at the intrinsic value (real value derived from fundamentals) when they make investment decisions and the massive loss of revenue will hit hard on company valuations.

We estimate that the losses will continue into the foreseeable future as the virus keep spreading.

Let’s worry about money later back to survival first! Remember to always wash your hands and avoid unnecessary contact.

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