COVID-19 Impact on Major Stock Markets

 -FIIB Business Review

The year 2020 has seen an unprecedented crisis in the form of coronavirus (COVID-19) and has affected the globe. It all started in Wuhan, a central city in China, where in November 2019 the first case of COVID-19 was reported. He et al. (2020) reported in their study about the progress of COVID in China.

In the first week of January 2020, Wuhan reported 44 cases, and the Wuhan Health Committee cited viral pneumonia due to unknown cause; however, it was said to have originated in a market place in Wuhan, possibly from bats. The real cause is yet to be identified officially. It was on 23 January 2020 that the Chinese administration suspended the transportation of all types from Wuhan and a lockdown was imposed in the city to prevent the spread of the epidemic.

It was on 30 January 2020 that the World Health Organization (WHO) issued its first global warning on COVID-19. However, it was on 11 March 2020 that the WHO declared COVID-19 as a pandemic; by that time, the virus had spread over France, Germany, United Kingdom, Spain, Italy and the USA. By 10 March 2020, there were 119,075 cases across the globe (https://www.worldometers.info/coronavirus/coronavirus-cases/).

The outbreak, which started in China, was spreading its base to Europe and the USA. The economic impact of the COVID crisis was showing across the globe, and in early research in China, Duan et al. (2020) showed that small- and medium-sized industries in China had severely been affected by the crisis because there was a sharp decline in consumption; these industries played a very critical role in the Chines economy. This could further derail the economy and have an impact on the banking system because companies and households were expected to default in loan obligations. Further, the stability of the banking system could have also been affected.

Also read: COVID-19 and International Business: A Viewpoint                                   

An early study done by The Economist through a report titled ‘Spread and stutter’ (2020) emphasized that COVID-19 will be a grave threat to global markets. In another report by The Economist, it was predicted that the fall in GDP of the USA and Europe would be near 2% and thus all the stock markets were in the grip of fear.

Even though stock markets always face a degree of uncertainty, COVID-19 crisis can be referred to as a Black swan event that was not anticipated. Black swan events, such as grave terrorist attacks and epidemics, lead to panic among investors and the immediate response is panic selling.

However, in contrast with a terrorist attack, this COVID-19 crisis is unique because generally a terrorist attack is more country-specific and it does not affect the consumption pattern in other countries. In recent years, epidemics of this type occurred in Congo where there was an Ebola outbreak and also the spread of Zika virus.

Scientists have identified the current COVID-19 disease to a virus family known as coronaviruses, which includes both the Middle East respiratory syndrome (MERS) and severe acute respiratory syndrome (SARS) viruses. According to the Centre of Disease Control and Prevention (CDC), symptoms of COVID-19 occur as quick as two days or as long as 14 days, after exposure or contact with an already affected person. The disease is thus highly infectious, and it is also difficult to confirm and control it in the early stages.

 

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