The Effect of Coronavirus on Global Financial Markets

Financial markets have dropped for the third successive day as investors are becoming continuously spooked by the impact of Coronavirus or COVID-19.

 

February 25th

On Tuesday the four main US indices fell sharply. The Dow Jones dropped by 900 points falling more than 3% to close at 27,081. The S&P 500 also fell by more than 3% with the Nasdaq losing 2.8%. The Russell 2000 also fell 3.1%.In the international markets, we saw the FTSE fall by 2% recording a 12 month low of 7,018, with Japan’s Nikkei 225 falling 3.3% and Germany’s DAX dropped alsoFebruary 26th

Wednesday proved to be more of a mixed day with markets seemingly recovering in the earlier party of trading to then drop off again. Compared to Tuesday where stock markets dropped at around 3% across the board, Wednesday, saw an average of a 0.5% drop across the main US markets.

The situation in Europe was much the same with most markets showing little activity and remaining fairly flat in comparison to the preceding days. Across Asia, the Hang Seng closed 0.7% down with Nikkei index falling 0.8% respectively.

Longer term projections 

Moody’s have estimated the virus is likely to reduce global growth by 1% in the first three months of the year. If the outbreak is not contained as expected, it could trigger recessions in the US and elsewhere.

“The Coronavirus has been a body blow to the Chinese economy, which now threatens to take out the entire global economy,” chief economist Mark Zandi said.

Ian Stewart, Deloitte’s Chief Economist in the UK said ‘Many factories and businesses are operating well below capacity. Apple warned that its global supply of IPhones would be “temporarily constrained” due to the disruption to manufacturing in China. Jaguar Land Rover CEO Ralf Speth said that his company flew parts in suitcases from China to the UK to ensure it did not run out of key components.’

The biggest losers?

European markets dropped sharply in early trading on Wednesday morning with corporate profit warnings adding to market fears.

Companies whose supply chain is tied closely to China are faring worst at this point. Travel and tourism companies notably airlines, hotels and cruise companies are also seeing significant losses. Insurance and healthcare companies are also experiencing a strain with a higher number of claims for various reasons.

Who’s benefiting?

Some companies are doing well amidst the crisis including private jet firms, protective gear providers and delivery services in areas where restrictions are being placed. Investors who have shorted the aforementioned falling markets will be seeing gains. Gold is also performing positively, as it normally does in times of crisis.

Photo by M. B. M. on Unsplash

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