Outbreak of Coronavirus and its impact on global market and supply chain

Outbreak of Coronavirus and its impact on global market and supply chain

Corona” in Latin means “halo” or “crown”.Three particularly dangerous diseases that have spread due to coronaviruses: COVID-19, SARS, and MERS. First identified case of COVID-19 was found in Wuhan, China. Presently no vaccine is available. Common symptoms include fever, cough, breathiness etc.

It can spread in the following ways:

  • Touching or shaking hands with a person who has the virus and it can pass the virus between individuals.
  • Contact with a surface or object that has the virus and then touching the nose, eyes or mouth.
  • Coughing and sneezing without covering the mouth can disperse droplets into the air.

WHO recommended basic hygiene such as regularly washing hands with soap and water, and covering mouth with our elbow when sneezing or coughing.

It mainly affects the following categories of people:

  • young children
  • women who are pregnant
  • people aged 65 years or older

Recently WHO had declared the new coronavirus outbreak, a global Pandemic. Around 4,600 people have died from the diseases and there have been more than 126,00 confirmed cases worldwide, according to the WHO and it has spread at least 118 countries.

Impact on EconomyIts spread has left businesses around the globe with huge losses

  • Global shares at low – All categories of investors are worried about the impact of coronavirus. Big shifts in stock markets, can affect investments in some types of pension or individual savings accounts.
  • Travel among the hardest hit – The travel industry has been massively affected, with airlines cutting flights and tourists cancelling business trips and holidays.
  • Growth could stagnate If the economy is growing, that generally means more wealth and more new jobs. It’s measured by looking at the percentage change in gross domestic product, or the value of goods and services produced, typically over three months or a year.
  • Factories slowing down- China makes up a third of manufacturing globally and is the world’s largest exporter of goods. But activity has decreased in the so-called “workshop of the world” as factories pause their operations to try to contain the spread of Covid-19.
  • Customers buying less–   Fear of the coronavirus outbreak means that people are choosing to avoid activities that might expose them to the risk of infection, such as going out shopping. Restaurants, car dealerships and shops have all reported a fall in customer demand.

Nobody Knows that for how many days or months will it take overcome this disease. But following steps taken at a different level can reduce the impact on the market.

Interest rate cut: It helps to establish how much consumers pay to borrow. When interest rates are low, consumers tend to purchase a higher volume of goods. Recently US Federal Reserve has cut the interest day. It was the Fed’s first emergency rate cut since 2008 financial crisis. This rate cut is done due to the economic risks and in support of achieving its maximum employment and price stability goals. Similarly, other central banks must take appropriate action to achieve their goal.        

Decrease in taxes: Reducing taxes increases the amount of available cash that consumers can use to purchase goods and services. The more cash consumers have, the more purchases they are likely make. As consumers in a country increase spending, it directly increases aggregate demand. Tax cuts could decrease individual income taxes, sales taxes or property taxes.

Government Expenditure: Recently President Donald Trump signed an $8.3 billion spending bill to fight the coronavirus on March 6. An increase in government spending on goods and services can increase overall economic demand. The infusion of capital into the economy through government spending leads to increased financial resources in the private sector that injects financial resources into the hands of consumers.

Improvement in Health care and medicine facilities: It’s the responsibility of the central and state government to improve the conditions of the hospital and medical facilities. A few days back a new hospital ward is opened in Wuhan, China which is completely run by robots. And this will protect medical staffs from contracting the coronavirus. This robots deliver foods, drinks and drugs to the patients and keep the ward clean. Works 24/7 measuring heart rates and blood oxygen levels via smart bracelets and rings worn by patients. 

Regulatory role: On the global front, world share markets witnessed their worst scenario since the global financial crisis, wiping out about trillion of money.  SEBI assured that the regulator and stock exchanges are prepared to “take any action” as required to deal with market volatility, hours after trading was halted for 45 minutes on 13th March. This kind of steps gives a positive sentiments to the investors towards the stock market.

Diversify the Portfolio:  If the investor has diversified portfolio of stocks and bonds, the bond portion would have risen, cushioning stock losses and underlining the power of asset allocation and diversification. That’s why it’s so important for investors to focus on their long-term goals and plans, not the short-term gyrations of the stock market.

Self-Depended – It’s time for the countries to release how much they are dependent on China and America. Countries must focus on improving their manufacturing, Automobile, services and Health care sector.

See as Opportunity for investors –

I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful. –   Warren Buffett

There is gloom and doom in the market, and there is a possibility that the selling pressure will continue for some more time. But, these Black Swan events have happened in the past as well. One thing which stands out is the fact that markets have bounced back aggressively once the overhang is over which has created opportunities for long-term wealth creation.

Putting money in markets at current levels would be very difficult because no one is aware where the bottom is? Hence, quality stocks that have come off from high should ideally be considered for investment. However, we see it as buying opportunities for the investors who should utilise the declines to lap up the good businesses

Tech, Research and Innovation: Drones can be used to deliver medical supplies, AI to identify, track and forecast outbreaks. Video conferencing can be used for meeting rather than a personal meeting.

China is one of the best example where it is trying to recover: Real estate, manufacturing, Energy demand has turned up.

Due to the shutting down or running in limited basis of schools, sports leagues, workplaces, cultural sites, -the economy could shrink as much as 4% to 5% in the second quarter and trigger a sharp increase in unemployment.

 Opinion

  • Support for immediate unemployment benefits for those who are lost their jobs and lack the income to meet daily needs
  • Supporting a tax benefit to help continue business
  • Providing low- to no-interest business loans to cover lost revenue as a result of the outbreak.

The Requite

The Requite

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