COVID-19's infection spreads to the global markets

Since its inception in December 2019, the dreaded coronavirus has infected more than 106,000 worldwide with 3,500 reported fatalities. With its birth in Wuhan district of China, the virus has slowly penetrated the boundaries of Middle East, Asia and Europe with a heightened risk of a pandemic looming over the heads of individuals. On a destructive spree, the infection has also spread to the businesses and the financial markets. This post I try to dissect the business world to showcase the potential impacts the COVID 19 will have on their operations and the aspects the business leaders should focus their resources on to quell the dangers.

COVID-19 had its origination in the wet markets of Wuhan district of China where animals (dead and alive) are sold for meat. With live animals being butchered and sold, it was evident that the health standards would be awfully low. The virus has believed to have transferred from a bat into the human mechanism and has multiplied, having set its deadly presence in 80 countries. The disease is spread through air with the death rate to be approximately at 20-25%. That said, I am unaware of how long the health authorities would take to contain the virus completely. However, I do want to shed some light on how businesses and markets will face the brunt of this virus.

Some sectors; aviation, tourism and hospitality have observed a lost demand as the people have postponed their vacation plans till the threat subsides. With manufacturing at an all time low, the major manufacturing epicentres; Germany, Japan and China have stalled their factory operations to keep the employees safe. Furthermore, the consumer durables will also see a subsided demand. However, unlike tourism and hospitality sectors, the demand is expected to pick up in the subsequent quarters. The financial markets also have dived with a high investor concern regarding the safety of their equity investments (Refer to Table 1.0)

Figure 1.0: Equity markets snapshot

 The US reported strong employment and hiring numbers with addition of 273,000 jobs in the economy. However, even this failed to act as a strong support to the declining stocks. With rising risks in the markets, investors have switched their asset allocations to fixed income instruments which have, therefore, shown rapid decline in their yields. After the trading session ended on 8^th March 2020 in Wall Street, the 30-year Treasury yield plunged by 28 bps, which according to Bloomberg, is steepest declines since 2008-financial crisis. During such perilous situations, bond markets are closely monitored since they are determinants of future economic growth for the country and from looks of the current scenario, investors believe a decelerating economic future for the United States. To fix the economic repercussions, Fed slashed the interest rates by half bps. “For us what really matters is not the epidemiology, but the risk to the economy. So we saw a risk to the economy and we chose to act “said Fed Reserve chairman Jerome Powell, as per the article in Financial times. Furthermore, corporate is also expected to have lower earnings this quarter with disrupted supply chains and unfavourable macroeconomics.  

The businesses of today are supposed to inculcate a proactive approach to this problem. The primary focus of business leaders needs to be on employee health. Companies must maintain a mechanism for a prompt medical action if any employees are detected positive. The medical action should entail instant attention to the diseased and immediate checking for the spread of virus across the corporate premises. In case of pessimistic situations, companies need to have a contingency plan so as to not disrupt their operations completely. The most favourable method for implementing this is to develop a stress testing module (financial as well as operational) and develop use cases for different scenarios. Lastly, companies who have significant exposure to the deeply affected countries like China should discover alternate supply chains to minimize the risks. Eventually, this exploration can serve the long-term purpose of increasing and nurturing healthy collaborations.

Finally, to conclude I just want to put out my heartfelt message to the readers: Whatever happens to the investments, do make sure that virus doesn’t infect you.  


* The opinions expressed in the article are personal and do not represent the opinions of the organization I work for *