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Coronavirus Pandemic Panic Infects Global Markets: Stocks Fall to Record Lows and Bear Market Beckons

Professor of Financial Economics and Part-time Value Investor, Transfin.
Mar 13, 2020 11:16 AM 2 min read

Some $14trn has been wiped from world stocks this month. To put that into perspective, that’s equivalent to the nominal GDP of China, the world’s second-largest economy.


Stock markets around the world suffered staggering losses, in many cases recording their worst falls since the 2008 economic crisis; some recorded their worst weeks on record.


India, Japan, South Korea, Australia, Hong Kong, China, Europe, USA – the coronavirus economic fallout spared no one. Along with equities, oil prices tanked and bond yields have also plummeted.


Wednesday’s stock-market declines accelerated after the World Health Organisation (WHO) declared the new coronavirus a pandemic and said it is “deeply concerned” by the “spread and severity” of the virus and by “alarming levels of inaction.”


The Fall of the Bulls

The longest-ever bull market for US stocks has ended. The Dow’s decline from its most recent peak crossed 20% on Wednesday, the threshold that defines a bear market. This officially ended US stocks’ 11-year bull market run, which began following the Great Recession and was the longest in history.


What baffled investors was the swiftness with which markets moved from an all-time high to bear market territory – it took just 19 sessions.


Meanwhile in India

Indian markets have been swinging wildly. On Friday, Indian stocks erased most of their losses incurred during a volatile session after a 10% crash in the main indices triggered a trading halt earlier in the day. This “circuit breaker” – the first time it has happened since 2009 – was followed by a dramatic swing. Sensex ended the day up 4.04% while Nifty was up 3.81%.


The volatility index surged 44% to its highest in over a decade.


Are the Bears Back?

A bear market differs from a "correction" in its severity, with the latter referring to a decline of 10% from stocks' most recent high. Such declines may also send different signals about the state of the economy. Corrections are common in bull markets – but what happened this week was not a correction: it was a 20% fall.


The bugles have been sounded alerting the beginning of a bear market – which, after more than a decade-long bull run, was long-feared nonetheless.


There is a silver lining, though. Bear markets usually don't tend to last as long bull markets. The typical bear market lasts just shy of a year and wipes out about 34% of the stock market's value. And despite the global panic about coronavirus, analysts expect the pandemic to be largely contained in the coming weeks and the global economy to rebound later this year.


(To read the entire End of Day News Wrap Up of the day, click here.)


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