The rout across global markets deepened on Friday, as major stock indexes around the globe posted significant declines due to sell-off by investors as a result of angst over the spread of the coronavirus. Notably, the spread of the virus appeared to have gained momentum recently, following the reports of confirmed new cases in the U.S, Germany, South Korea, Italy, Iran.
In Sub-Sahara Africa, Nigeria, the largest country in the continent, also confirmed its first case on Friday. In North Africa, Egypt and Algeria also reported new cases. According to Bloomberg, the global death toll from the coronavirus outbreak has surged past 3,000.
We think the rapid increase in the number of new cases across the globe stoked fears of an impending global recession that made investors liquidate their investment in risky assets in search of less risky investments and safe-haven assets such as gold and the Japanese yen.
Accordingly, global stocks fell by levels last seen in the global financial crisis. On the other hand, US treasury yields fell to its lowest level since the global financial crisis. Stoking further concerns, the CBOE volatility index jumped 129.3% w/w to 39.16 on Friday.
In the United States, the S&P 500 and DJIA fell by 11.5% w/w and 12.4% w/w, posting its worst week since the 2008 crisis. Stock markets in Europe, Japan, China also followed suit, with the Europe Stoxx 600 shedding 12.2% w/w, German DAX losing 12.4% w/w, French CAC down 11.9% w/w, the Chinese Shangai composite index down 5.2% w/w while the Nikkei 225 and Hang Seng index lost 9.6% w/w and 4.5% w/w respectively.
Coming back home, the local bourse also recorded its biggest daily loss in 2020, as the ASI declined by 2.2% resulting in a week to date loss of 4.3%. Meanwhile, Brent oil prices also plunged 10.8% w/w to a 31-month low of US$52.18/bbl on the back of rising concerns about global demand.
Since the outbreak of the virus in China, economic activities have been hampered while global supply chains have been disrupted, as several countries imposed travel restrictions on immigrants, airlines suspended operations to certain destinations while industries and factories have shut down. A notable development has been the rise in share price of “stay in” stocks such as online streaming platforms, home fitness and video conferencing stocks while “go out” stocks have been on the receiving end of severe selling pressures.
Heading into the new week, we expect the somewhat positive developments over the weekend ranging from President Donald Trump meeting with pharmaceutical industry executives, G7 Finance Ministers meeting to coordinate virus response, and the U.S Federal Reserve re-opening the door for a possible rate cut on “evolving risks” to bring some calmness across the global markets.
Notwithstanding, we do not envisage a broad-based recovery across global markets as we expect investors risk appetite to remain soft given the recent spate of reported cases across the globe. Hence, we think investors who would still prefer safer investment havens such as treasuries, government bonds and gold at least in the short term.
