The global stock markets are likely to suffer their worst week since 2008, as the coronavirus begins to spread beyond Asia. Analysts had hoped that the virus, named COVID-19, would have a temporary impact and be mostly restricted to China. However, daily reports that more new cases of the disease were being confirmed outside of China than within, and the mass outbreaks in Iran and Italy have ended the likelihood of this.
On Friday 28 February, $5 trillion was wiped off the global stock market, with the UK’s FTSE 100’s contributing £152 billion of that total. Some major companies suffered a 13% decrease in the value of their shares, with traders describing a sea of red across their screens.
In the United States, the Dow Jones stock market index saw its biggest one-day drop ever, falling almost 1,200 points. Unsurprisingly, the worst-hit shares were those in the travel and tourism industries. Which then had a knock-on effect on the price of crude oil, with a single barrel dropping from almost $70 in January, to costing $50 on the 28 February.
However, researchers maintain that this is probably a temporary overreaction, as investors fear the worst, and attempt to protect their portfolio by selling stocks and investing in safer assets such as gold.
Norihiro Fujito, an investment strategist, said: “Markets can cope even if there is a big risk as long as we can see the end of the tunnel. But at the moment, no one can tell how long this will last and how severe it will get.”
Companies in trade and industry have also been negatively impacted because the sudden halt to China’s economy has meant businesses are constrained in terms of their supply. In other words, although the demand for goods and services remains the same, companies who have become dependent on Chinese labour and trade are unable to meet that demand.
Some analysts are even less worried by these events and are confident that a rebound should be forthcoming.
Guy Foster, head of research at Brewin Dolphin, told Sky News that the supply constraint: “is actually pretty market neutral, something that just tells you there is going to be profits made later in the year.”
Nevertheless, he goes on to warn that if this, “goes on for longer, then it could hit employment and then that could lead to recessionary-like characteristics.”