Buckle up: More wild market swings ahead as coronavirus spreads

Kuala Lumpur, Malaysia – Asian stocks tumbled to new multi-year lows on Thursday and investors said they are bracing themselves for wilder rides ahead, even as governments ramp up measures to curb the spread of the coronavirus.

The inability to grasp the full extent of the impact has spurred investors to flee for cash and sell all other assets.

Even as policymakers from the United States, Europe and Australia unveiled unconventional measures and reduced interest rates more drastically to protect their economies, analysts are increasingly convinced that may not be enough to shield against the looming prospect of a global recession. Economists define a recession as at least two consecutive quarters of negative growth.

The impending economic downturn may prove to be more painful than two other financial crises affecting the world in the past because of how widespread the effects of the coronavirus are, analysts said.

“The economic impact this time could be much more severe than the global financial crisis in 2008/2009, which was largely a Western problem while the Asian Financial Crisis in 1997/1998 was centred in Asia. Now COVID-19 is a global problem, everyone is getting hit,” Alexander Chia, RHB regional equity research head at Investment Bank, told Al Jazeera.

“It’s a global meltdown. Investors are trying to price in a worst-case scenario, but no one can define what worst-case means now,” he said.

European, Australian responses

After an emergency meeting on Wednesday, the European Central Bank launched a 750 billion-euro ($812bn) bond-buying programme to cushion the economic blow from the coronavirus outbreak, which has sent much of Europe into lockdown and brought economic activity to a near-standstill.

After slashing interest rates to near zero this week, the US Federal Reserve said on Wednesday it will set up a Money Market Mutual Fund Liquidity Facility backed by $10bn from the Treasury Department.

The new lending facility will offer emergency loans to money market mutual funds, a move designed to support families, businesses and the financial system, preventing a credit crunch from squeezing fund flows to companies that need it.

On Thursday, the Reserve Bank of Australia slashed its key interest rate to a record low of 0.25 percent to support the economy that may slip into its first recession in 30 years.

Australia has been reeling from multiple natural disasters, including drought and wildfires, in recent months, rendering the economy especially vulnerable to shocks even before the coronavirus started to spread.

“Such a context lends itself to the now-heightened risk that Australia is about to experience its first recession since 1991, especially if jobs growth ends its three-year run and unemployment spikes due to the quarantine measures in light of the coronavirus outbreak,” Han Tan, market analyst at currency trading firm FXTM, told Al Jazeera.

Both Australia and its neighbour New Zealand said they are closing their borders to non-residents starting this week to halt the spread of the virus.

Australia’s benchmark S&P ASX 200 share index tumbled 3.44 percent, while New Zealand’s S&P NZX 50 Index dropped 3.6 percent.

MSCI’s gauge of stocks in the Asia Pacific, excluding Japan, was down 4.5 percent to its lowest level since June 2016.

Among the region’s heavyweight markets, Japan’s Nikkei 225 index fell 1.04 percent, China’s Shanghai Composite index fell 0.98 percent, and Hong Kong’s Hang Seng Index dropped 2.61 percent, all closing above their lows for the day.

In the Philippines, stocks slumped by a record 24 percent at one point on Thursday when trading resumed after a two-day shutdown. The country’s main stock index ended 13.3 percent down.

Oil bounce

Oil prices rebounded after both the US benchmark crude West Texas Intermediate (WTI) and Brent crude nosedived the day earlier. WTI rallied 12.9 percent to $23 per barrel, while Brent crude jumped 5.4 percent to $26.22 a barrel.

But the rally is not expected to last.

Global demand for oil is expected to fall as economic activity slows down due to the virus. Meanwhile, a price war between top producers Saudi Arabia and Russia is likely to lead to a huge increase in production by Saudi Arabia and its allies.

“With a global recession upon us, with an indeterminate end, and a price war in full cry by oil producers, the world should probably be preparing itself of sub $20.00 oil sooner rather than later,” Jeffrey Halley, senior market analyst for Asia Pacific at OANDA, said in a note shared with Al Jazeera.

“If I were to be asked where the next strong support for oil is, I would point out the WTI has multi-year technical support at $10.00 a barrel,” he said.

As the death toll from coronavirus continues to climb and the epicentre shifts to Europe from China, where the outbreak originated, the economic damage remains hard to quantify as more countries race to shut borders and impose movement restrictions each day.