Coronavirus only a catalyst for market falls

Stock market falls Photo: Reuters

During the SARS scare in 2002-2003, the S&P 500 fell 15%, but a year after the outbreak ended it had more than recouped.

The S&P 500 Index fell nearly 1.8% on Friday, leaving it 3.1% below the peak recorded on January 17, and back at its level on Christmas Eve.

The main catalyst in the recent decline on the stock market is the fear of the spread of the coronavirus and the effect of that on economic activity in China and globally. Nevertheless, it's important to stress that the decline came after a long period of rises, in which the S&P 500 shot up 15% in less than three months and by 21% in seven and a half months.

Other bourses around the world have also sustained price falls. In Tel Aviv, the Tel Aviv 35 Index is about 5% below its peak of January 22. The Hang Seng Index in Hong Kong, which of course has close business ties to mainland China, has fallen by 9.4% since January 17,

Stock markets in China itself were closed last week because of the lunar new year, and so their current levels do not yet reflect the full effect of the coronavirus outbreak. Between January 13 and January 23, the main index on the Shanghai Stock Exchange fell 4.5%.

The Shanghai and Shenzhen stock markets were due to have reopened last Friday, but remained shut. The Chinese government decided to extend the festival vacation in an attempt to buffer the expected stock price falls. The exchanges reopened today, and Shanghai Stock Exchange Composite Index fell 7.72%. The main indices on the Tel Aviv Stock Exchange continued to fall at today's opening, but European markets opened on slight rises.

Meanwhile, the Chinese government has extended the festival period for factories in China to February 10, in an attempt to reduce the spread of the coronavirus disease.

Analysts have been trying to estimate the potential damage and what sort of recovery will follow, and among other things have looked at the effects on financial markets of previous global epidemics, at the time of the outbreak and a year after they came to an end.

The epidemic that affected the market most sharply in the past two decades was the SARS (severe acute respiratory syndrome) virus that broke out in China in 2002-2003. 8,096 people were diagnosed with the disease, and 774 were found to have died from it, but in the end, SARS disappeared as quickly as it appeared.

The effect of SARS on financial markets was not long-lasting or very deep. Analysis by a financial institution in Israel shows that during the period of the epidemic, the S&P 500 Index fell about 15%, but in the year after the epidemic ended, it rose about 20%.

Published by Globes, Israel business news - en.globes.co.il - on February 3, 2020

© Copyright of Globes Publisher Itonut (1983) Ltd. 2020

Stock market falls Photo: Reuters
Stock market falls Photo: Reuters
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