Asian markets plunged after US markets crashed in its worst session since the Black Monday collapse 33 years ago.
The selling, first triggered by the World Health Organisation declaring the coronavirus a pandemic gained momentum after US officials panicked about the inadequacy of the health system to combat the fast-spreading virus, which has claimed 4,720 lives and infected over 128,000 people globally.
The ban declared by the United States on travellers from Europe, and the European Central Bank decision to hold rates steady led to further selling of stocks.
Japan’s Nikkei 225 plunged 10%, the Australian S&P ASX 200 fell 7.6% and South Korea’s Kospi benchmark was down 8%. Chinese stocks fared better – losses were less extreme. The CSI300 is down 3.5% and Hong Kong’s index Hang Seng is down 5.7%.
Overnight, all three US benchmarks entered bear territory. The Dow Jones index collapsed 9.99%, the S&P 500’s dived 9.51% and the Nasdaq sank 9.43%. Wall Street’s fear gauge, the VIX surged 21 points to 75.47 – its highest since November 2008.
But not everyone is despondent.
“Ferocious market reactions to the fast-expanding coronavirus epidemic and the Saudi-triggered oil price war have left equities potentially poised for a sharp, even if short-term, rebound,” said Pictet Asset Management strategists in a note in which they raised their tactical positioning on equities to Neutral from Underweight.
The note said the shock to markets is underscored by the jump in the VIX and added that a rebound in equities looks all the more likely if policymakers implement coordinated stimulus measures, much as the UK did on Wednesday with an emergency Bank of England rate cut and huge fiscal package.
“I expect we will get a rally off these lows on fiscal policy stimulus, followed by a retest of the lows on the reality of the coronavirus and the continued emotional drip of bad news, and then I believe this will all be behind us by the second half of the year,” said Andrew Slimmon, head of the Applied Equity Advisers Team at Morgan Stanley Investment Management.
Although the European Central Bank held rates, it eased capital constraints and boosted liquidity.
“The European Central Bank announced additional liquidity measures but stopped short of outright rate cuts. Absence of a ‘whatever-it-takes’ conviction in the policy response underwhelmed markets. This added to equities underperformance, ending the EUR lower,” Radhika Rao, a DBS economist, said.
Rao said the recent escalation in Covid-19 developments in Europe and resultant disruptions in production, consumption and service sector output, including tourism add to downside risks to DBS’s Eurozone growth forecast for 2020. It comes at a time when the region faced the spillover from a subdued 2019, when growth ended at the slowest pace since 2013.
“Domestic demand indicators are exhibiting fatigue on the back of a tough year for the manufacturing and trade sectors. We dial down our 2020 GDP estimate to 0.7% year-on-year from 1.1% previously, factoring in a weak first half (of the year) but stabilization in the second half when the epidemic likely eases up and activity resumes,” Rao said.