Second Wave – global spreading of Coronavirus, potential chain reactions in stock market:
-> regional fear of Coronavirus
-> global fear of health crisis
-> L4 stock from high to mid to low optimism
-> global financial crisis
Fear driven by US, No 1 economy needs special attention as it affects over 50% global stocks.
Last 1 month when Coronavirus was serious in China, Singapore and Asia, the local Asian fear were insufficient to affect the US or global stock market due to small size of Asian stock market.
In summary, safer to position as short term trend-following trader or investor. A mini bear could be a correction but also could evolve into a big bear.
Sars in 2003 was regional (mostly Asia) and occured at L4 world stock market low optimism, therefore impact was limited to global stocks as potential of falling further is limited.
This time in year 2020, Coronavirus is less deadly than Sars but spreading globally (even to Africa, the only safe continent is Antarctica but no one could confirm as it is too cold there), causing global fear, having potential to be a black swan to trigger global financial crisis if the condition could not be controlled by summer (before May) as currently L4 world stock market and L3 US stock market are at high optimism.
It usually only takes 6-12 months to drop from high to low optimism, therefore Coronavirus has to be controlled globally (reaching 95-99% peak as the development in China and Singapore) within 3 months by end of May, else the more “deadly” global financial crisis may be triggered, especially if US is badly affected.
Coronavirus may not be so deadly, 1% people may die. Global financial crisis could be more deadly, both short term (see the news, even millionaire or billionaire who could not control greed may lose financially, a few ending own lives eventually) and long term (eg depression over finance condition, especially if investing in junk speculative stocks which may not recover at all after the crisis).
Back to the source, China is showing declining trend (less than 1% new daily cases), following by Singapore (stable to downtrend, about 0-3 new daily cases in last 1 week, about 1-2% new daily cases). If global countries follow similar measures as China and Singapore over the last 1 month (eg restrictive travelling, public health education, quick action on isolation for infected cases, etc), it is possible for the rest of world to take another 1-2 months (by end of Apr) to reach its 95-99% peak as well.
If the virus cannot be avoided, then the second best goal is to minimise the impact. Action is important, similar to fight against Coronavirus and also to face the global financial crisis which may be like an emerging virus, we won’t know how deadly is this black swan but early action (ok to be considered kiasi or kiasu) would help (eg, exit as a short term investor when the loss is more than the risk tolerance level). Same as Coronavirus, we need to stay alive in stock market by preserving the capital unless investing in a portfolio of global giant stocks, then one could have the option to hold through the financial crisis, similar to Warren Buffett style of buy low & hold.
Meanwhile, Malaysia is tougher, having 3 potential crisis at the same time: Coronavirus, stock market and political. Hope this is not the perfect storm. Learn to convert crisis into stock investment opportunity: www.ein55.com
