A Time Endurance Test for Investors….
Viral Crisis: A Time Endurance Test for Investors in the Stock Market
Biggest disaster since 2008: It could take up to a year for the current situation to stabilize. Globally, the Corona epidemic has caused panic in equity markets. Let’s take a look at the past while the lockdown is still being speculated. Earlier, a similar global crisis erupted in 2008-09 and the Nifty fell by 30 per cent in a one-year period. This time, the Nifty alone fell more than 50 per cent in a month and a half.
The epidemic is deadly and it is difficult to control it as no cure has been found yet and hence there is a very fast panic selling in the global market. Fund managers are transferring their money to government bonds and US dollars, which has led to an increase in bond prices and lower bond yields.
Emerging markets are depreciating currencies for the same reason. The key difference between the 2008 crisis and the current crisis is that governments are resorting to lock=downs to prevent the spread of corona. Which in turn is stifling economic activity and could have a serious impact on the global economy.
Trade and traveling have stalled due to the lockdown. When control over the spread of corona is established, economic activity will gradually improve. Until then, economic activity will be at a low for years. Most experts are of the opinion that it may take up to a year for the current situation to improve. However, the market does not seem to agree with this.
The credit crunch of 2008 was mainly due to the financial crisis in the United States, the world’s largest economy. The main reasons for the crisis were credit default swaps (derivatives) and the housing crisis. Leading merchant bank Lehman Brothers also went bankrupt because of this and it rocked the markets. The global financial system behind the US was affected. At that time there was a big erosion in the value of currencies. To address this problem, the US Federal Reserve adopted a policy of quantitative easing with a rate cut. Due to the bank’s monetary support, confidence in the markets returned within a year and the stock markets surpassed their previous highs.
Many countries are also trying these measures today in the fight against Corona. However, this is having a limited effect on the markets. Because the main problem today is not finance, but global health. So far, three million people worldwide have been infected with the corona. Surprisingly, the situation in China, where the corona originated, has come under control. Asian countries like South Korea, Singapore have also taken control of the situation there. However the situation is still critical in Europe and the US. Most countries have taken lockdown decisions and have therefore adversely affected economic activities.
In February 2017, the market cap of the global stock market was seen at its peak. Because up to that time, the effect of Covid-19 was seen only in China. However since the virus entered other countries the health issue has caused more serious global concern than previously expected. It was previously thought that developed countries would not fall into this trap. Europe and the US have been the victims. Which has had the opposite effect on trade, traveling, consumption and other economic operations. This will have a sharp impact on global GDP growth during the current financial year. Decreasing corporate growth and earnings will increase financial risk. If we look at the development from January to March, there is also a feeling that the spread of corona through lockdown and future vaccines can be controlled.
Given the current disaster, the world may change its investment strategy in the future. In the midst of all this, India can show long-term out performance. The main reasons for this are economic reforms, investment attraction policies and the low impact of Corona compared to others countries.
