Complex Made Simple

FXTM: Are global stocks heading for a bear market?

Han Tan, Market Analyst at FXTM, addresses what market uncertainty in wake of the Coronvirus could lead to.

US stocks set to fall into deeper correction Investors to seek confirmation in China PMI Covid-19 pandemic could trigger bear market

Global stock markets are spiralling downwards and set for their worst week since the Great Financial Crisis, with the Dow Jones and the S&P 500 both entering correction territory after each fell by another 4.4 percent respectively. The MSCI Asia Pacific index is set to enter the weekend on the back of seven consecutive days of losses, with just a single day of gains to show over the last 12 trading days. European and US futures point to another day of losses to close out the month.

Equity investors have finally been jolted into action after weeks of seemingly paying little heed to the warnings about the coronavirus’ potential to negatively impact earnings. Market participants are joining in the fierce sell-off, even as they are still flying blind amid the continuing uncertainties about how long the coronavirus outbreak will last, how many countries would be ensnared and how deep its impact will be on global economic and business conditions.

China PMI could set the immediate market tone for March

Even as some segments of the its economy come back online, China’s February PMI data released on Saturday, could serve as the next marker for risk sentiment. Confirmation that the coronavirus is putting the brakes on the world’s second largest economy could spell another leg down for risk assets, while better-than-expected data may deflate some of the selling pressure.

If Covid-19 morphs into a severe pandemic, that could herald a bear market for equities, which is usually accompanied by a recession, although it is not the market’s base case at this point in time. The sooner the coronavirus outbreak can show signs of stabilising, the greater the potential revival in risk appetite, while allowing a longer runway for momentum in the global economy to be restored in 2020.

Read: Asian sell-off continues as pandemic fears rise