So why did the Chinese stock market drop, 9.1% in a single day? Not any particular stock but the entire stock market as a whole. Well on February 3rd 2020 the coronavirus after the coronavirus spread became very apparent to the world, to the point where, large companies, like Apple, Tesla, Microsoft, Samsung and Google all have plants in china, and with tens of thousands of employees working for them, but they sent everybody home.
In the province of Hubei, 50 million people living there, they couldn’t leave the province. The chief investment office held a meeting talking about the coronavirus, everyone was talking about it, and how it affects them. From normal day people to investment banks, to presidents and world leaders.
Here we are going to go through:
- Pandemics in the past and how many death tolls we have had
- The difference conspiracy theories that came about regarding the coronavirus.
- How the market responded
- How all of this affects your finance
So, the coronavirus, what is it?
The coronavirus is a type of zoonotic virus which is transmitted between animals and people. The origin of the virus appears to have come from the Wuhan, the capital of Hubei province. And it can spread through coughing and sneezing or of course close contact with others, travelling shaking hands, touching objects with the virus on it and then touching your nose and mouth.
Now we won’t get much more technical that that as quite frankly we aren’t doctors, we are traders, what we really want to know is how does this affect the markets, and the biggest word being thrown around at the moment is pandemic, so this is understood that since it’s affecting the globe then the impacts of the virus in one economy can easily be translated to the economy of a country on the other side of the world, the only difference is at what stage is that country at, take Italy, for example, it was one of the worse hit countries in Europe. With death rates skyrocketing but other countries in Europe only had a couple of cases. This allowed projections based on Italy of how it would occur in neighbouring countries.
The advantage of this is to issuing measures to minimize the impact by watching how it unfolded and then providing guided measures to contain the virus. Of course, we didn’t have to rely on Italy to get this data as we have had a few pandemics in the past that have negatively impacted the economies as well. The black death is an example of this, which occurred between 136-1353 and killed roughly 75-200 million people, of course, these numbers are not 100% accurate as they did not have the technology we have today and there is no way to ever really tell the true figures of these impacts. Then you have things like the flu pandemic, HIV, Plague of Justinian, Asian flu, third cholera and sixth cholera. Now keep this in mind each of these contains over 800,000 deaths and it’s all pre-1968 so the world wasn’t as advanced as it is today and the coronavirus has caused so far 2.4 million cases and 165k deaths to date, which is still a big number but hopefully we won’t have prolonged years of death to come by reducing the momentum through our current lockdown measures.
But if we look at Sars and compare it to the coronavirus Sars occurred in 2002-2003 china contributed 8.7% of world GDP and was the 6th largest economy, today it contributes 19.3% GDP and is the second-largest economy, why is that relevant, well since it is now the second-largest economy if something happens to china, the whole world is affected through different levels namely in the supply chains because the only economy above chine is the US, now we have two of the major economies in the world hit hard by the coronavirus pandemic and the numbers from China are being reported to be inaccurate and of course, that makes sense since it was the epicentre and somehow is reporting one of the slowest developments.
Therefore, a lot of industries are taking hits, whether its travel, manufacturing, shipping, tech, mobile, and as I mentioned, the companies above shutting down their factories. You see cruise ships with people stuck on them and they can’t go anywhere because countries were worried about the virus coming to them. So, it is affecting many different industries all over the world.
Now, we are hearing many conspiracy theories, like the coronavirus has been leaked for military purposes, this coming from Titto sotto, president of the Philippines and you see him at a conference where he gets up and says to about 150 people that this is all the works of china and being a biowarfare used by china as a way to weaponize against its people or potentially the world in order to weaken military structures elsewhere for a hostile takeover.
Some are saying the Chinese government are using the virus to attack innocent people as they were having a lot of protests in the street and what was starting to look like a major uprising, well now the streets are empty. There were many videos that went viral of people being pulled from their homes, citizens arrested being placed into quarantine to get them away from others saying it was measures to protect people.
Some people claim the CIA and Military are directly involved, I mean the list goes on to the extent some claim that there is no virus this is just a way for governments to control the people or now we have the idea that 5G is involved the list is endless. Now, this is all worth considering keeping an open mind but its important to stay objective and look at what is really happening in front of you because otherwise, it will drive you nuts.
So now, how does this affect the market, while it’s all taking place? Because immediately as this happens and a lot of people panic, history can tell us a lot about the stock market as it relates to the dynamics of human behaviour. Now two things one being the S&P 500 and the other being the Morgan Stanley capital index which is an index that measures 1644 stocks worldwide. The exact numbers if your interested you can search MSCI and S&P500. But below we have a full list of pandemics that took place, if you study the board your mainly looking for red, meaning the market dropped and green means the market went up, so you have the list of pandemics, which month it was in the year then the 6-month change in the S&P500 then 12-month change also in the S&P500 and then 6month change in the MSCI on how it responded worldwide.
So, with HIV it was red across the board and worldwide it affected the economies by -3.25%. from that point on the pneumonic plague affected the world globally by -4.3%, with measles and Zika being the only other two that affected the economy negatively.
So at the beginning people who don’t follow the world of finance assume it’s the end of the world because of the large drops that take place at the start, like china stock market dropping 9% in a single day, but it’s important not to fall victim to the fear and from all the “experts” that claim the end of the world type scenarios, history has a way of repeating itself and it’s those that do a little research like this that will understand that yes things are bad now and may even get worse and we can take advantage of that downside but we must prepare for the upside that follows because when it does we will have a huge opportunity to catch it before anyone else does and trade in line with the smart money.
Let’s look at last year, the seasonal flu, the flu we get every year, 500k people died last year from it, in the US alone it was 14k to 35k cases of death relating to the flu yearly, and this is why people don’t really trust the numbers that come out of china because while deaths were reported around the world, china only reported 56 deaths in 2016 41 deaths in 2017 and 144 deaths in 2019.
This is largely due to the government in China controlling the data that they give to the public; this is done to protect themselves to show to the world they are doing well. So, look we aren’t saying its not worth t be putting out all this content regarding the coronavirus as this is something to acknowledge but its important to remember that while the fear is being placed into us the board is shifting, laws are being passed and we aren’t noticing and market opportunities are on the rise, you have to stay alert and stay alive if your too paranoid you cant enjoy anything and you may miss opportunities, like in 2008 with the housing crash, everyone say the credit crisis and entered a state of fear, houses saw record price drops and no one was thinking to buy because the market was collapsing, when in actuality it was one of the best times to buy and pick up property at discount prices, but of course this required money on hand and an eye for opportunity, similarly we do not believe the low is in the markets, we could see stocks very soon drop significantly and when they do we will ultimately look to take advantage of the downside by selling the stock market and then at the bottom seeking opportunities to pick long term stock buys in companies like amazon for example that are expensive to buy now but hold value in the future.
Now the last point we are going to touch on is that using the coronavirus to manipulate the market by using fear. It’s not going be the first time or the last time they do it to control the populous and move wealth from your pocket to theirs, for years the mainstream media and the government have used fear to control people, the very banks that own large portions of the media have conflicting interests and own the outlets you get your information from. For centuries powerful people have used fear tactics and let us tell you, it won’t ever stop, the only difference is today, they have more tools to do it and it’s in your face all day, now there is nothing wrong with more attention to personal hygiene if anything can be taken away from this it’s the importance of washing your face washing your hands to protect yourself, have wipes with you have antibacterial.
But do not overreact, if you do you will take a hit, you will miss opportunities that today are presenting themselves beautifully, monetize fear, the government will impose the fear, you should monetize it!