In Europe, the main stock indexes plunged on February 28, with Germanys DAX index down 3.4%, Britains FTSE 100 index down 3.1%, Frances CAC40 index down 3.9%, and FTSE Italys MIB index down 3.2%.
Hong Hao, general manager of BOCOM international and head of research department, believes that the market still underestimates the impact of the new coronavirus epidemic on the global economy. Most of the analysis focuses on the impact on economic growth. The negative impact is estimated to be about 0.5-1%, obviously, it is impossible.
Hong Hao pointed out that the market must pay attention to the changes in the liquidity structure at the corporate level, including the recent zero and comprehensive suspension of credit bond issuance in the U.S. credit market, about 200 companies in the S & P 500 issued profit warnings or risk statements related to the epidemic, and the global supply chain was hit.
Hong Haos advice to investors is to be cautious: if you have good stocks in your hands, hold them; if you have cash in your hands, please hold on.
New crown spread to six continents
Novel coronavirus pneumonia cases have been reported in China, Africa, Oceania and Europe. Investors worries about the global economic recession intensified, which triggered a large-scale sell-off.
According to the report of the national health and Health Commission of China, 327 newly confirmed cases were reported on February 27, a new low since January 23, and 3622 newly cured and discharged cases were reported on that day. 78824 confirmed cases and 2788 dead cases were reported.
But outside China, for the first time, confirmed cases have appeared in many countries. The novel coronavirus pneumonia is the first African new country in Nigeria, the sub Saharan African country. Italy is the first country to be diagnosed with new crown pneumonia. In Oceania, a novel coronavirus pneumonia was first reported in Iran. In Eastern Europe, Belarus and Lithuania also had their first cases.
According to the monitoring data of Johns Hopkins University, as of the evening of February 28, Beijing time, there were 83704 confirmed cases and 2859 deaths in the world. In addition to China, 2337 cases have been confirmed in South Korea, 655 in Italy, 270 in Iran and 226 in Japan. More than 55 countries or regions outside China have seen cases of infection, and about three-quarters of new cases have been reported outside China.
Tan Desai, who director general, said in Geneva on February 27 that the biggest concern is now outside China, and the global epidemic is at a critical moment, suggesting that all countries should act quickly.
Tan Desai pointed out that novel coronavirus pneumonia is not related to borders or races, but also has nothing to do with the GDP or development level of a country. We call on every country to be ready for early detection of cases, isolation of patients, follow-up of contact groups, provision of high-quality clinical care, and prevention of outbreaks in hospitals and community transmission.
In order to prevent the spread of the epidemic, Japan, South Korea, Italy and other countries are increasing isolation control measures, which will inevitably bring different degrees of interference to personnel flow, economic activities and even global supply chain.
As the economies of these countries were already relatively weak, the spread of the epidemic has heightened market concerns about a possible recession. Under the leadership of South Korean and Italian stock markets, the stock markets in Asia Pacific and Europe collectively launched a slump mode. The US stocks that are too high to be cold cannot be alone. With a case in California where the source of the infection could not be determined, panic swept through wall street. The global stock market will experience its worst week since the 2008 financial crisis.
In fact, Hong Haos analysis pointed out that the extreme and intensive positions in the market before the crash, and the extremely excited mood had been predicted in advance. Now that many of the heavyweight stocks are down more than 10%, many big funds will be forced to reduce their holdings to reduce portfolio risk and deal with the pressure of redemption. This process leads to extremely negative market price momentum, continuous negative correlation of return, oversold leads to a larger oversold.
At present, the market outlook is still very uncertain, but market sentiment began to change from extreme optimism to extreme pessimism. Hong Hao believes that in this case, the overseas market may have a short-term oversold technical rebound in the short term. But the mood swings are fleeting, so its very dangerous to operate according to the changes of market mood. Now it is very expensive to try to buy put option to hedge portfolio risk.
The global economy is at risk of recession in the first half of the year
According to a survey released by the American Chamber of Commerce in China on February 27, the biggest challenges facing Chinese and American enterprises are travel disruption and employee productivity decline. Nearly a third of respondents expect to resume normal operation by the end of March, and about 12% expect to resume at least in the summer.
Although it is too early to judge the impact of the epidemic on industry growth this year, 48% of respondents expect a certain decline. If the outbreak ends before April 30, about half of the respondents predict that their income in China will decline; if the outbreak continues until August 30, nearly one fifth of enterprises expect that their income will fall by half.
According to another survey by the European Chamber of Commerce in China, most European companies with operations in China expect revenue to decline in the first half of the year. Due to the comprehensive and severe impact of the epidemic, a quarter of enterprises expect to reduce their revenue by more than 20%. Nearly half of the respondents said they plan to reduce their annual business targets due to the epidemic, while 56% said the epidemic caused a decline in demand for products and services.
However, although Chinas epidemic prevention and control is still severe and complex, it has shown an overall stable, stable and positive trend. At present, China is returning to work and production in an orderly manner while doing a good job in epidemic prevention and control, and has introduced a series of policies and measures to stabilize the economy, including measures to stabilize foreign investment and foreign trade. In areas with low risk of epidemic, social and economic operation is gradually recovering. At the same time, Chinas economy is resilient, and under a series of powerful measures, the short-term impact will not change the long-term trend of Chinas economy.
In the context of the spread of the global epidemic, global production and manufacturing are disturbed, the consumer market is shrinking, the global impact is expanding, and institutions have lowered their economic forecasts.
In a report on February 27, Moodys, an international rating agency, said that with the surge of confirmed cases outside China, the probability of the epidemic globally has risen from 20% to 40%. Our previous assumption that the virus will be controlled in China has proved too optimistic.
If there is a global pandemic, Moodys believes that the result could be a global and U.S. recession in the first half of this year. Before the outbreak, the economy was vulnerable to anything that wasnt in the script. Moodys analysis said the outbreak of the new outbreak was completely out of the script..
As far as the United States is concerned, Moodys pointed out that the epidemic has brought downside risks to the economy. Despite the limitations of monetary policy, the Fed may need to step in at the last minute. That is to say, Moodys believes that the Fed is unlikely to cut interest rates urgently now.
Goldman Sachs, the Wall Street investment bank, also cut its forecast for US GDP growth in the first quarter from 1.4% to just 1.2%. Jan Hatzius, chief U.S. economist at Goldman Sachs, pointed out in the report that the risk was clearly downward until the epidemic was contained. A growing number of companies expect production cuts if supply chain disruption continues into the second quarter or even later.
In addition, Goldman Sachs on February 27 also lowered its forecast for the average earnings of this years enterprises. Goldman Sachs lowered its earnings per share forecast for S & P 500 companies from $174 to $165 this year, which means earnings are flat and stagnant compared with the same period last year.