Stock market is one of the key economic indicators which
reflects the performance of the economy. And since last one month we are observing that each and every stock index is showing new bottom every day. We all know that world economy has plunged and destructed with pandemic impact of Corona. And the statistics
says it is global recession. It is very difficult to predict the corona impact and its magnitude but expect it will be over soon.
Corona virus is the real threat and destructing the world
economy. But the world has seen several such crisis in past also like global financial crisis, epidemics and many more. However such crisis has not last long in history and world is ready to address such issues and find the solution. Entire world is witness
that China is the epicentre of such problem.
Now, again I am coming to the point that how this disease
is disturbing the world. It is very panic situation for the worldwide investors. Investors’ sentiments are in negative and which is generating huge outflow from the equity investment. I have observed that how this virus spread from China to the rest of the
world and even though there is little bit impact on the stock market of the China and big impact on the rest of the world. I have doubt in this case that whether this panic has been created by the traders in the mind of investors or what? Any way the fact is here:
| Region | Index | Closing Index Value as on 19/03/2020 | Closing Index Value as on 31/01/2020 | % Change |
| Russia | RTS | 876.55 | 1,517.07 | -42.22% |
| Brazil | BOVESPA | 64,389.96 | 113,760.60 | -43.40% |
| France | CAC | 3,760.42 | 5,806.34 | -35.24% |
| Germany | DAX | 8,385.26 | 12,981.97 | -35.41% |
| Argentina | MERVAL | 23,046.15 | 40,105.04 | -42.54% |
| UK | FTSE 100 | 5,123.16 | 7,286.01 | -29.68% |
| USA | DJIA | 20,082.71 | 28,256.03 | -28.93% |
| USA | NASDAQ | 7,205.23 | 9,150.94 | -21.26% |
| Japan | Nikkei | 16,552.83 | 23,205.18 | -28.67% |
| India | Nifty 50 | 8,263.45 | 11,962.10 | -30.92% |
| India | Sensex 30 | 28,288.23 | 40,723.49 | -30.54% |
| Singapore | Strait Times | 2,311.00 | 3,153.73 | -26.72% |
| South Korea | KOSPI | 1,457.64 | 2,119.01 | -31.21% |
| Taiwan | TAIEX | 8681.34 | 11,495.10 | -24.48% |
| Hong Kong | Heng Seng | 21,709.13 | 26,312.63 | -17.50% |
| China | Shanghai Composite | 2,702.13 | 2,976.53 | -9.22% |
Source: Self compilation
The above table is self descriptive, where we can see
the downside risk generated by China in stock market and rest of the world also. It means that this panic has been created by the traders in the minds of the investors.
As I state above that the world is witness about such
panic and crisis and such problem have lasted for few months and the markets have bounced back in short period. We have the statistics for the same:
| VIRUS OUTBREAK |
ESTIMATED PERIOD OF OUTBREAK |
No of Months |
Returns During Outbreak |
One year Return after the Outbreak S&P BSE Sensex |
| SARS | Jan – Mar 2003 |
3 months |
-10.70% | 83.38% |
| Avian Influenza |
Jan – Aug 2004 |
7 months |
-12.23% | 50.33% |
| Ebola | Dec 2013 Feb 2014 |
3 months |
1.58% | 39.02% |
| Zika | Nov 15 – Feb 2016 |
4 months |
-13.14% | 24.14% |
Source: Mint Research
This is the clear picture of the virus outbreak and meltdown
in the stock market and returns given by the same market after small panic. Last but not least, I would say like Warren Buffett says, “buy when there is fear in the market.” And today we are close to the extreme fear and this is the good time to the investors
to accumulate equities for wealth creation because valuations today are extremely attractive for three to five years from here. Statistic is also showing that promoters of the companies are also buying their own stocks because it is undervalued and investors
are selling in to the market due to fear and panic.
Author:
Dr. Himanshu Barot, Professor, Unitedworld School of Business (UWSB)
Disclaimer: The opinions / views expressed in this article are solely of the author in his / her individual capacity. They do not purport to reflect the opinions and/or views of the College and/or University or its members.
