The Dow fell over 12 percent on 16th of March 2020, registering its biggest single day loss since 1987. Circuit breakers were triggered three times this month, suggesting that the market is attempting to price-in a scenario that matches the 2008 Subprime crises, or even worse.
US futures rebounded around 2.5% this morning, while Asia-Pacific markets continued their downward trajectory. The economic and political uncertainty resulting from Covid-19 is shadowing the entire financial market and this could last for some time. Epidemiologists suggest that the pandemic may not end by August, thus we need to prepare for an extended period of economic downturn.
Liquidity is getting squeezed, scaring away buyers and inducing short-sellers. A crunching stock market will not only raise the financial risk among corporates and financial institutions as they become less valuable and less creditworthy, but will also result in less consumer spending in a time when consumption is already badly hurt by the pandemic.
Traditional trading methods and technical analysis may prove to be poor strategies in a time of such wild moves. Risk management and proper allocation of cash in the investment portfolio is perhaps more important.
VIX- a gauge of market volatility, surged to 71 last night, matching the level only seen during 2008’s Subprime crisis.
The Greater China markets are perhaps more resilient against external shocks due to their low-valuation and the fact that Covid-19 has been contained in the mainland after implementing countrywide lock down measures.
In Singapore, overnight news that Malaysia is starting a 2-week national wide lockdown may dampen sentiment further as Singapore is highly reliant on Malaysia’s labour and resource imports.
Volatility Index – March 2020
Disclaimer: CMC Markets is an order execution-only service. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.
Margaret Yang Yan