Beijing street scene on Monday. Photo: AFP / The Yomiuri Shimbun

The Covid-19 pandemic has become not only a major public health emergency but also a global economic and financial crisis.

Since the World Health Organization upped its rhetoric on Covid-19 because of the rapid spread of the disease, financial markets – including stocks, oil, government bonds and gold – have experienced wild bouts of volatility and major selloffs.

It was only last month that Wall Street experienced record highs. Now one of the key indices, the S&P500, is down by about 28% since that week in mid-February.

The turbulence is largely driven by the almost inevitability of a short, sharp recession this year – and by doubts whether the fiscal stimuli and monetary policies being rolled out by governments and central banks around the world will be enough to combat the pandemic’s effects.

Yet, as critical as they are, fiscal and monetary polices are not the ruling factors any longer in influencing market trajectories. Public health agendas now take top billing.

Investors are now tracking Covid-19 cases and death tolls as rigorously as they would, say, the price of gold.

The epicenter of the epidemic has shifted in the last three weeks from east to west – from Wuhan in China to Italy and Spain. Europe has now registered more Covid-19 cases and fatalities than the whole of China.

Almost from the start, the Chinese government introduced extreme lockdown measures to contain the spread of the coronavirus. It seems to have worked, with cases having dropped off significantly. But the hit to the world’s second-largest economy and to the global economy, of which China’s is a major driver – has been immense.

For these reasons, investors will now be looking at how China gets back on its feet economically. Did the aggressive quarantining work? Will there be another outbreak as activity resumes? How will authorities revive the economy? How will these decisions and their success or failure impact the rest of the world?

Financial markets will rebound considerably when there is a definitive indication that the infection rate is dropping and that cases have peaked. Investors will jump off the sidelines and prices will respond accordingly. 

This is why what happens next in China’s recovery in terms of public health and economically is critical for the world. What happens in the People’s Republic will be used by investors as a guide and a gauge for the rest of the world, particularly the US and Europe, where Covid-19 transmissions are yet to peak.

Nigel Green is founder and CEO of deVere.

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