Question

Discuss a major world event and how it could affect financial markets?

Expand on the Corona virus

Compare these two elements

Public perception of the event VS Actual Facts of the event

(For example how increase in fear caused by media can unnecessary trigger the financial markets)

Answer 1

An unanticipated disease known as corrona virus (COVID -19) has spread worldwide since end of Dec 19.Starting from China, the disease spread all over the world and created pandemic.

The spread of the novel coronavirus disease COVID-19 has severely impacted the global financial markets. These are incredibly uncertain times, with countries around the world suffering the destabilizing effects of the pandemic. No company is immune to the challenges caused by the health crisis, and there are understandable concerns about the damage caused to the worldwide economy.

Major impact of corona on financial markets -

• The fears grow about the impact of the COVID-19 virus, stock markets have slumped.
• The recent COVID - 19 has impacted all financial markets worldwide in particular share prices trend dropped significantly and continuously.
• Due to Covid -19, global market collapsed by 30-35% because of lockdown in consumption.But producers despite seeing consumption is dropping kept on Producing. So there is some kind of volume war rather than price war and Saudi Arabia and Russia even today are producing in full capacity. So it is a very crazy kind of trade war.
• The COVID - 19 has taken the financial markets to the quit different trading directions which will eventually impact the world economy.
• It is impressive to note that the stock market of China, as the first country to be hit by the outbreak of COVID-19, was not severely affected.Thus, China’s stock market shows a high degree of resilience compared to the rest of the world by rebounding performance following its initial plunge. Our empirical results indicate that the outbreak of COVID-19 had a negative but limited impact on stock markets.
• Furthermore, huge drops are observed in the stock markets of the countries that had not yet been severely affected by the virus. A tentative explanation for this seemingly counterintuitive finding is that the impact of COVID-19 in the stock markets of Asian countries has spill-over effects on European and American countries. The spill-overs appear to be related to the spread of COVID-19 and the shock, fear and panic among international investors.
• The impactof the COVID - 19 on the financial market based on study from 1st March to 25th March 2020 in China and USA

1. The Dow Jones, and S&P both of which take into account the share prices of a variety of companies in the US have dropped by over 20%.
2. Another world evidence of the impact of the financial markets worldwide is from Nikkei who trades with Tokyo Stock Exchange. The trend of market price of Nikkei as well experienced the volatility of the share prices and mostly the dropping trend throughout since the outbreak of the COVID - 19 and becoming the pandemic to the whole world.
3. Colombo stock exchanges sometimes have closure of the business and price of shares to drop in a meaningful impact.
4. China's financial market remains generally stable compared with overseas markets despite the spread of the novel corona virus (COVID-19)

5. The study findings revealed that there is a positive significant relationship between the COVID - 19 confirmed cases and all the financial markets.

Public perception of the event VS Actual Facts of the event

The market perception is more optimistic than relaity on ground. The problems seems to be far more deeper than what stock market reality is right now. It is like after punches you put the fifth punch and sixth punch, the impact of fifth and sixth punch are far higher than the first four punch. So that is how the world economy is taking it and so the longer it goes on the worst it will be.

There is rapid increase in economic anxiety during and after the corona virus.

The public belief about mortality and contagious are associated with participants' economic worries about the aggregate economy.

The google search intensity for topics indicative of economic anxiety surged substantially after the virus reached country. Google seach for topics such as recession, stock market crash increased all over the world. This is due to fear of Corona virus.

Unnecessary rumour regading corona virus is creating economic anxiety and leading to crash of stock market. Whenever people get to know say for example - Company X is making a vaccine , its share price goes up and when it is confirmed that this news was fake, its prices reduces rapidly.

misinformation and panic is at its peak with markets erasing hard-earned wealth and messages flooding phones with misinformation.

The spread of misinformation is such that Unicef had to step in and disclaim the home remedies that are doing the rounds on social media. Solutions ranging from drinking alcohol to avoiding ice cream to doing gargles with hot water are some of the most wide spread misinformation related to Coronavirus. Moreover, authorities like UNICEF are being quoted at the end of such fake messages to cloak them with a cover of authority.

Wrong rumours spread by media of using some product will reduce the risk of corona virus , hits the demand and supply of that product and impacts the price of the product. However, in reality till date there is no medicine or vaccine is there in market against corova virus.

Now a days media, news, newspapers and social media is very powerful and people do rely on these news. But all the news on social media is not correct. It is creating unnecessary fear on the people.The corona virus is not so dangerous and all the people affected by corona virus will die is not right.

Some Financial Experts on media also reccommends people to not to invest in financial markets as according to them the market will go down and they advise people not invest their money.

Even some experts advise to invest on gold rather than investing in stock market as due to corona virus market is collapsing. This is creating increase in gold value and declining in stock markets.

However, advice of all experts are based on their view point which is not always correct. If people start investing their saving in markets, companies will get fund for their operation and this might improve the economy.

The media focus on people who died out of corona virus, rather focusing on the percentage of people getting recovered. This is a negative thought created among the people. The percentage of people dying from corona is much less and it almost similiar to the people dying out of seaonal influenza.

Some of the common perception on covid -19 :-

Public Perception	Actual Fact
people who get COVID-19 get very sick or die	Most people who get COVID­-19 will have a mild form of the illness and recover without needing professional medical care
We can always tell if someone has COVID-19	No The virus can be in someone’s body for up to 14 days before they get symptoms, and some people will have such a mild case of COVID-19 that they might not notice that anything is wrong. That’s why it’s important that everyone follows government advice – including hand washing, using tissues to catch coughs and sneezes, and avoiding crowds – to stop the spread of the virus, even if they feel healthy.
COVID-19 only affect old people, meaning young people don’t have to worry	While COVID-19 can be more dangerous in older people, anyone can get it including young people, some of whom become seriously ill. While we don’t yet fully understand why some people get more serious symptoms, we do know that young people are more likely to develop serious symptoms if they have certain underlying health conditions, for example asthma, heart conditions or untreated HIV