Corona crushes World Stock Market

March 30, 2020

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.