The coronavirus outbreak, (now a global pandemic) has had many global consequences; besides the obvious health risks, COVID –19 has led to an economic crisis of unseen proportions: culminating into a stock market crash and a credit crunch. There is no denying it. The stock market reflects the overall economy; with global demand falling off a precipice, stocks have followed.
What is the corona virus (covid-19)?
The corona virus first originated in Wuhan, China in late December 2019, since then, the infectious disease has spread all over the world and 'taken hold' of countries such as Italy, Iran and Spain. The virus itself is a highly infectious disease like pneumonia, with similar symptoms. Although its mortality rate is only high to the risk groups (diabetics, older people, immunocompromised), it is easily spread and can be acquired before symptoms show, which makes it much more dangerous and difficult to contain. Although drastic measures are being taken globally, with many countries closing borders and enforcing mandatory self-isolation. Despite these measures, a firm decline in viral infections outside China is yet to be seen.
Its impacts on the stock market
COVID–19 has caused a serious decline in stock markets worldwide, some being China's, USA's and Brazil s. Emerging stock market indexes such as Brazil’s Ibovespa and Russia’s MOEX have been the most affected. The stock market decline begun in late February, when the virus became a more global and serious issue. The stock market crashed due to the decrease in demand that comes from quarantined population. Declining revenues and fixed costs, such as interest payments, has led to a large credit crunch to which leveraged businesses are most vulnerable. This puts businesses in a “make it or break it” situation, as we don’t know how long this crisis will last. The stock market is sure to replicate the dynamic of the real economy.
As of March 20th, IBOVESPA, the Brazilian benchmark index has had a 41% decline since February 20th. Dropping from 114,586.24 points to a worrying 67,069.36 points. Many retirees, both in Brazil and abroad, depend on some measure on stock markets. Pension Funds are some of the largest holders of stocks; the current decline has come to jeopardize not only the health of the elderly, but also their wallets. Risk-free assets such as the dollar and gold have rallied. Although many will likely recover their loss, this will only happen in the long run. Many can’t afford to wait.