Economic and market fallout from Covid-19 set to worsen before it gets better
INVESTORS have long wondered how much longer the extended bull market in the United States would last.
Now the global outbreak of Covid-19, which was earlier largely confined to China, may be the untimely catalyst for a downward revaluation. Since news broke that the epidemic has intensified in South Korea, and spread further into Europe and even Iran, concern has deepened on the ability of governments and healthcare systems to cope with a potentially uncontrolled spread. The knock-on effects on the global economy are not completely visible as yet, but global growth, already fragile, is widely expected to take a hit. This has triggered a rout in stock markets, which until recently have been relatively resilient. As at Wednesday this week, the S&P 500 has slumped by 8 per cent over the previous five trading days. The yield on 10-year Treasuries is near record lows, hovering at around 1.32 per cent, in a decisive turn towards risk aversion.
Was the market rout overdone? To be sure, it is too early to call a peak in Covid-19 infections. The World Health Organisation has stopped short of calling it a pandemic, but has said that increasing signs of transmission outside China "show that the window of opportunity we have for containing this virus is narrowing".
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