25 February 2020, Athens.
COVID HA-19 or more commonly known as Coronavirus has taken the world by surprise once it originated from Wuhan, China and it is spreading across the world at a dramatic pace in January. The WHO is on the verge of officially declaring it a global pandemic soon. The virus may result in economic turmoil which can have widespread and damaging impacts upon the global markets including commodity, stocks, and bond. The pandemic has already caused the deaths of many victims in China and few other the countries it has spread to and is predicted to infect hundreds of thousands which can lead to the closure of many businesses or temporary shutdowns of different markets. The lack of revenue generated from the dysfunction of businesses, corporations, and enterprises can worsened the stock market which could lead it to crash in 2020.
- Oil Price War
Recently, the IEA (International Emergency Agency) predicted that the demand in 2020 for oil would be the lowest since 2011. In case of an outbreak of Coronavirus as a pandemic, IEA has indicated that this oil slump may soon come to pass. Already some countries are beginning to tighten restrictions and quarantine areas as a precautionary measure. Should this technique continue to expand, the oil prices will fall every day. Saudi Arabia and Russia are the largest exporters of oil around the world. Competition between them would result in a potential stock market crash and harm the global economy. It is very likely that the two will try and negotiate an agreement but it’s highly doubtful a resolution comes out between the two parties.
- Bond Market
The Coronavirus may soon begin to shake the economies throughout the world. Between Mid-January and early February, investors have begun to turn towards increasing their additional yield to hold bonds. These bonds were four times the premiums normally expected from credit lenders which indicated growing wariness towards the market.
Government bonds yields have been sinking consistently as investors are seeking refuge elsewhere. These factors will naturally lead to an increase in bond prices and create more doubts about global market growth in the wake of the corona crisis.
- Infection of Confidence
Consumer and Investor related fears about the COVID-19 may intensify exponentially. The virus can affect trading between countries; especially from the global economic powers such as China, EU and the USA. There are growing concerns that it will lead to temporary shutdowns of corporations and public gathering areas such as cinemas, theatres, restaurants and theme parks which are an essential source of revenue for investors. If the expansion occurs unpredictably without taking relevant precautions, then it might affect the travelling industry, business dealings and tourism as well. These worries can erase the consumer confidence in the global market tampering its growth.
In case of inability to contain this expansive virus, the circumstances can probably lead the market to plunge numerous times where economists predict will result in an inevitable crash soon. Investors have still not received much comfort in the containment of this pandemic and the crippling of Chinese manufacturing does not bode well for the markets to retain the same confidence. The picture will appear much more clearly in the coming months; but what will the market face in those times and how correct are our concerns in this regard, the time will tell soon enough.
Chrysostomos (Makis) Bollas (BSc, ACPA, AAIA, CIPFA Affil) has more than 15 years of experience in International Tax Advisory, he is a senior Partner at AMP Group. Amp Consultants, AMP Advisors UK and Founding Member of the Association of Certified Financial Consultants.