The world has become a different place in the last three months. We are facing the toughest times after World War II. Coronavirus the name which has devastated so many lives, which was originated from China has spread in the whole world.
Coronavirus or say COVID-19 is a public health crisis around the world. This health crisis affects the world in such a way that, due to this some other crises are also faced by this beautiful world. They are-
• Supply chain crisis
• Demand Crisis
• Stock market crisis
The stock market crisis is the outcome of the supply chain crisis and demand crisis. The stock market, that means, the financial markets around the world are facing difficult times due to the direct and indirect effect of COVID-19. The reasons are numerous.
Financial markets are the place where people use wealth to create wealth with the help of shares of different small, medium and big corporate firms. Due to COVID-19, businesses around the world stop.
The airline industry is facing a hazardous financial situation due to COVID 19. More than 10000 flights are cancelled and a 19% loss in worldwide passenger revenue. This figure equivalent to a loss of $113 billion in revenue.
Due to the lockdown announced by the government in many countries, the service industry was stroked by shocks. The restaurants are empty, no guests arrived in the hospitality industry. The luxury outlets of clothes, shoes, bags are empty.
All these businesses are the components of financial markets. The big corporate houses doing business through all of these small outlets. Since no business is happening, hence the return cash flow to the organizations is being stopped, which they invest in it.
As a result, the share value of these organizations is going down which are listed in the various stock markets in the world. If the investors’ money in the stock market is slightly gone, then slowly all the small and medium cap shares are lost their values and hence investors leave the market. So, at a time will come, when all the shares value of all the companies is going down, and no trading has happened. This situation is known as a stock market crisis.
This kinds of situation occurred in the world before, these are –
• 1997 – Asian financial crisis
• 1998 – Russian financial crisis
• 2000 – Dot com bubble bursting
• 2001 – 9/11 attack causing a market crash
• 2006 – Rise in global interest rate led to seal off emerging market
• 2008 – Global financial crisis
• 2011 – High domestic inflation
• 2020 – Crisis due to COVID-19
In 2020, the market crisis started on 20 February. From 24-28 in this month stock markets around the world reported the largest one week decline since the 2008 financial crisis. In 9 march, most of the stock markets reported a severe drop in the indexes in response to COVID -19 pandemic. This became known as the black Monday I.
Again on 12 March, Thursday, again stock markets of Europe and North America fell more than 9% and this is known as the black Thursday.
In March 2020, the stocks of markets around the world had seen a decreasing value of about 25%, and most of the G20 nations have seen a 30% decreasing.
The situation was so bad that circuit brakes were used in the Indian stock markets. Both the equity and debt market are downturns.
Despite the downturn of stocks in markets, this could an opportunity for the investors for investing in the markets. After a tangible improvement in the corona situation, the overall damage to the economic activity and demand will be assessed. Until this, the market will be dominated by traders and arbitrageurs.