Rapid spread of corona virus across the world is the most worrying issue in the world and the World Health Organisation (WHO) has already declared this outbreak as pandemic. This virus, termed COVID-19, originating in China has now started impacting the Western world; particularly worst affected is Western Europe where Italy, Spain and France are badly hit countries. This outbreak has virtually brought the whole world to a standstill and countries are gradually being disconnected from each other. People do not know how and when it will stop. With the virus spreading fast all over and governments trying hard to contain it, and businesses paling with every passing day, the fear of an imminent economic recession is an additional worry. Stock markets of almost of all countries have already experienced severe turmoil.
COVID-19 OUTBREAK & BEAR MARKET: During the last one week, all major stock markets have sustained huge setbacks as leading share-price indexes have drastically plunged. New York Stock Market, NASDAQ, Dow Jones, Toronto Stock Exchange, London Stock Exchange, Frankfurt Stock Exchange, Japan Stock Market have experienced more than 20 per cent fall in only one-week. New York Stock market and Toronto Stock market have lost more than four thousand points form its highest peak. Although last Friday, some markets including those of the USA and Canada have recovered, still total fall remains 20 per cent less than its peak period high. Investors, analysts and market experts are in grave concern thinking how the market will behave in the next few days. Maintaining consistency with the world trend, stock market in our country has also experienced turmoil and share-price index has undergone huge plunge as the share-price index has gone below 4000. This is very obvious that any standard and mature capital market will be responsive to world events. During the last ten years, all major stock markets in the world were in a consistently rising trend. But in our case, although the economic growth was remarkable, our stock market was in bearish trend as share-price index was constantly falling.
GOVT. ACTION IN RESPONSE TO SHOCK MARKET CRASH: Following the stock market crash, USA and Canada did not hesitate to immediately take some actions in order to prevent the fall. The Fed, (Federal Reserve Board) of the USA has immediately cut benchmark rate by hundred basic points to near zero per cent and in addition, they have promised to inject more than one trillion dollars into the country's banking channel. They have further expedited their quantitative easing strategy under which Fed will buy more treasury bonds form banks and financial institutions. Following US strategy, the Canadian government did not sit idle as Bank of Canada (central bank) has reduced its bench market rate by fifty basic points and also declared to inject ten billion dollars in the country's banking channel. We have not heard any such fiscal measures from our government. From our market's historical behaviour, it is clearly understood that the nature, depth and maturity of our stock market are quite different from world standard markets, so it is difficult for our government to immediately jump into the market with fiscal assistance. However close watch must be kept and in-depth assessment carried out so that government can provide assistance whenever such help is truly needed.
STOCK MARKET RESPONSIVE TO WORLD EVENT: Although people may not find apparent correlation between the outbreak of COVID-19 and immediate market crash, yet investors have experienced unexpected consequences. Moreover, present days' stock market is extensively technology based. It is said that American stock market is dominantly run by FAANG i.e., Facebook, Amazon, Apple, Netflex and Google, all of which are tech companies. Apart from tech companies, the market is largely dominated by the financial industry which may not experience immediate impact although long term impact cannot be ruled out. It is true that some service industries, especially airline, tourism, hotel industry and some small business companies will be hard-hit by COVID-19, but these businesses have insignificant presence in the capital market. To speak the truth, tech companies should not have any reason to be adversely impacted by COVID-19. Instead, they may expect more growth in the days to come because people will prefer to perform their regular activities including shopping through online platform instead of physical purchase from the retail stores. Nevertheless, the stock market is going through severe turmoil and uncertainty. In fact, this is the unique feature of stock-market which is super-sensitive to any world news or event. If any incident creates media news in any corner of the world, it is stock market which is jolted first. Trade war between USA and China, or warlike situation in the middle-east, or North Korea's nuclear test or even family feud in the Saudi kingdom may affect share-price index.
CURRENT STOCK MARKET IS DOMINATED BY HEDGE FUND: Now a days, world stock market is not dominated by retail or individual investors, the market is mostly dominated by hedge fund as well as private fund managers. Once, shares of listed companies were mostly held by two groups of investors -- one comprised individuals, and the other Board of Directors. This scenario has dramatically changed, now most of the small investors invest through purchasing mutual fund which is basically managed by experts and most of them are financial institutions. Large investors do not fund directly, instead they place their money with fund mangers who manage rich peoples' money by providing wealth management services. It is mentionable that now bank deposit in developed countries does not bear any interest and even, sometimes it results in negative interest. So, rich people do not find depositing money with banks viable at all, rather they place their money with to reputed private fund managers who eventually invest their fund in stock market. Number of this type of fund mangers is not big, but they exert tremendous influence on the market. During the last few years, the market was in a stable condition, so overall growth of fund managers was not lucrative at all. Experts were speculating a recession in the last few years but it did not happen. Recession which bears many negative impacts and hardship for the common people, comes with an opportunity for people in possession of huge investable funds. So, although at the expense of huge loss of common people, the outbreak of COVID-19 will also provide some opportunities to those investors who are eagerly waiting with their investable funds.
Nironjan Roy is a banker based in Toronto, Canada. [email protected]
