Global financial markets that were cheerfully sailing on fair winds of liquidity, infused by global central banks, have been suddenly hit by a giant wave of selling that has sent prices crashing and left investors gasping for breath.
Even until mid-February, investors were complacent that the coronavirus would be contained within China and a few other countries. It’s only when it became obvious that the virus was set to wreak havoc through Europe and the US that panic gripped investors.
The S&P 500 lost 33 per cent in just 20 sessions, one of the swiftest declines in recent times. The CBOE VIX, the investor fear gauge, hit 85.4, a level last recorded in 2008, and the CRB index that tracks commodity prices, is at its lowest in two decades.
What makes this market fall different from the 2008, 2001 or 1992 crashes is that the cause for the ongoing decline is a virus that threatens the entire society.
The COVID-19 pandemic that began in the Wuhan province of China in December 2019, has already affected 206 countries, infected over 12,00,000 people and claimed around 64,000 lives. And the pandemic’s peak is at least two weeks away.
If we look at past pandemics of similar intensity and scale, the 2009 H1N1 flu and the 1918 Spanish flu are the closest comparisons.
The 2009 pandemic infected between 700 million and 1.4 billion people across the globe, accounting for 11-20 per cent of the population, and killed 1,51,700-5,75,400 people. The virus was most virulent between April 2009 and April 2010.
The Spanish flu (1918-1919), the deadliest pandemic in recent history, infected about 500 million people, or one-third of the world’s population then, and claimed 50 million lives.
It is, therefore, quite likely that the ongoing pandemic continues over a large part of 2020.
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