COVID-19 - Is It A Black-Swan Event?

It often happens that, the thought of fear itself is greater than what it is we fear. The stock market is currently experiencing the same. It is feared that deadly Coronavirus could tip the world economy into recession. The correct assessment of the impact would be difficult now as situation is quite fluid. The emergence of new centers of infection outside of China is fueling concern that the outbreak could become a global pandemic, rattling financial markets. Nevertheless, it presents an opportunity to India. The current software industry in India is also a product of similar opportunity presented in year 1998 due to Y2K problem.

Indian investors have lost almost ₹11 lakh crore in five trading session ending February 28, 2020. What has led to such sharp fall in the market cap is the fear of Coronavirus, which is moving fast to become a pandemic as it is spreading its wings beyond China; globally 50 countries have reported cases till February 28, 2020. Besides, various Asian countries such as Iran and South Korea are also badly hit. While there were indications that the outbreak may be slowing in China, but France and Germany reported upticks in infections and South Korea’s tally surpassed 2,300. This pandemic could tip the world economy into recession and equity markets are on track since the financial crisis that began in 2008.

What History Suggests: SARS

This is not the first time that China is facing such problem. Way back in November 2002, severe acute respiratory syndrome (SARS) began spreading rapidly around the world, which was started in China. The outbreak of SARS had infected more than 5,300 people and killed 349 in China. The current situation is much worrisome as more than 2800 people have died so far with confirmed cases now well above 78,000.