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Coronavirus and what’s behind it

The way investors are affected by the coronavirus

In this article, I will give a brief overview of the financial implications of the coronavirus achieved so far. You can also find out how the coronavirus affects the current market and how you can benefit from it.
I think it’s important to write about what’s going on right now because it’s a repetitive process. Just for taste, here are some epidemics that have also received a lot of media attention.

Coronavirus' affect on investments

The coronavirus was not the first in a series of epidemics, and presumably not the last. Not knowing what the future will bring and when, one thing is for sure. Mankind and with it the securities market has survived epidemics, earthquakes, world wars, bombings and much more.

Before we get into the fresh and “trendy” coronavirus, let’s review some of the past epidemics in order to have a basis for comparison.

Name Date
SARS 2003. April
Avian flu (H5N1) 2006. June
swine flue(H1N1) 2009. April
Mers 2013. May
Ebola 2014. March
Zika 2016. January
Ebola II. 2018. October
Measles 2019. June

 

Put on the masks and jump into them!

What epidemics have been so far and what have been their effects?

In the introduction, we look at epidemics in 3 geographic areas and travel back in time to see the correlations. These three areas are:

  • China (SARS, Avian Influenza)
  • Mexico (Swine Flu)
  • Brazil (Zika).

This way we get an image both in time and space.
It will be a very brief overview, so don’t wait for an in-depth analysis. My only goal is to be able to see the end of events that have already ended in a situation where we are still walking in the middle of the tunnel.

China – SARS

The SARS virus originated in China in April 2003. In the world, the Dot Com downturn began in 2001, of which by 2003, it is said that everyone “should have” recovered. Much of the world has succeeded. China has suffered quite a few things, including SARS.

The image below shows a graph of the Shanghai Stock Exchange. What is clear from it is that it did not recover and arched up, but although it was possible to win on it, a downward trend can be observed until 2005.
From 2006, however, until the mortgage crisis, it shows a very dynamic rise. Even the 2006 avian flu, which also started in China, caused only a tiny fracture, so it only slowed down the growth.

Shanghai index, 20 years
Source: macrotrends.net

Mexico – Swine flu

The U.S. health authority indicated in 2009 that there was a “tiny bit of trouble”. The 2009 photos taken in Mexico could have been done now. Health masks are distributed and worn everywhere.

Because the Mexican economy does not have too much of an impact on the world economy, the neighboring but more emphatic U.S.A. and it has a bigger impact on the economy, so now I’ve brought you the Dow Jones index.

What can be seen: In 2008, the nice broad gray background mortgage crisis started, which pretty much battered the index. You can also see that in 2009, the flu affected the booming economy with the tiny refraction at which the gray bar and the blue graph intersect.

So there was even flu in the news in the news, but the economy greeted it nicely, they were glad that they had finally managed to recover from the mortgage crisis. There was a standstill, some uncertainty, but it soon passed. The plotting of the graph was similar to that of avian influenza above.

Dow Jones index
Source: macrotrends.net

Brazil – Zika virus

Brazil felt the 2008 mortgage crisis very much, as did other countries. Then came the economic downturn after a boom of up to 2010. You can see this on the basically downward graph.
This was exacerbated by the zika. However, the rather serious rupture was not just the effect of the zika. If you remembered, all sorts of bad news popped up at the time. From the oil corruption scandal to various abuses. The virus was just icing on the cake. If any investor was not interested in the oil industry, then they were interested in tourism or healthcare.

I think this from the fact that the zika virus has been present in the field for a very long time, yet the news about it got even more so in the preparations for the World Cup. According to some rumors, it is precisely because the investments of the World Cup, and thus its economic stimulus effect, that had an upward effect on the exchange rate. By throwing the bad news at the right time, the starting price can be pushed even deeper than it was before, so it starts to rise from a lower point. This will allow investors to win more.

Let’s look at the Brazilian stock market index for that period:

Bovespa index
Source: macrotrends.net

As you can see, 2016 was the biggest low point, then came the World Cup, and since then, with their characteristic waves, but they’re basically going up.

Conclusion from the epidemics so far

The economic impact of an outbreak depends largely on when and how it catches the economy. Of course, a single death that can be blamed on the virus is one more than what would be lucky. Here, however, it is more the psychological effects that add up to an economy as a whole. If expectations are positive, it causes a maximum of one halt, while if pessimistic forecasts prevailed, it means a more serious downturn.

What was the background now?
After many years of rising, it has been rumored for years that the next crisis is expected. Thus, markets reacted “as expected”, starting to collapse much sooner than supply chains would actually have collapsed.

And now the present situation: Coronavirus

As you know, a lot of trips have been canceled due to fears that they could catch the coronavirus. A lot of popular tourist destinations are either voluntarily closed or, even if open, echoes empty. Which is neither closed nor empty, and there the situation due to the defensive distances causes a decrease in traffic.

The same is true of airline flights. Not much was launched yet, especially at the sites proclaimed as focal points of infection.

And the cities that “show” the most infected have become virtually ghost towns. Schools, restaurants closed, people didn’t go to work, and they didn’t move out of their homes.

This also had an impact on the financial market. Stock markets have plummeted worldwide.

A lots of people tried a lot to alleviate the crisis, yet there was only one real solution: restarting the economy.

Let’s see what effect the coronavirus has now.

The situation of stock exchanges since the outbreak of the coronavirus

The Chinese index, recorded as a starting point, looked like this:

A Shanghai index since the coronavirusA strong rupture can be seen, but the nice growth present since mid-March could predict that order will be restored.

The US market reacted to the Chinese epidemic as follows:

S&P index since the coronavirus

It seems to have been interrupted in the same way by bad news as well as by supply chain disruptions. In America, the epidemic has not yet come to an end, so it may bring more surprises, but judging by the numbers, they have not stopped completely. Although the streets are empty, the digital world is producing.

The Hungarian BUX was not left out of the decline either, although due to the slowdown in the economy, it has not reached its level a year earlier:

BUX index since the coronavirus

The cessation of production and the disruption of the stock market mean that turnover has picked up towards safer forms of investment. This is typical behavior in times of crisis. Investors take their money out of more uncertain, riskier forms of investment (such as stocks) and invest in safer forms of investment. These are the focus of an economic downturn, so they usually move just the opposite of the stock market in times of economic stress.

What are these safer forms?
Such is the case with gold, which has been pushed up even more by the virus, but the settlement that has taken place since then and the increased demand for shares have depreciated its price.

Investment gold exchange rate since the coronavirus

Before we get into how you can benefit from this, let’s look at what else can be important in a situation like this.

What’s more important is the Vix

The Vix index measures the volatility of stock market pricing. It is also basically referred to as an index of fear. The higher its value, the more fear and uncertainty there is in the market.
Below you can see this for the S&P 500 stock index:

S&P VIX index since the coronavirus

The leap is clear.
This is partly because there are so many individual stocks that have been very deeply affected by the coronavirus. Either in a negative direction (e.g., airlines because of the many missed flights) or even in a positive direction (companies that have benefited from people sitting at home, like Netflix).

The downturn is a good sign because it shows that the market is starting to calm down.

How can you win over the coronavirus?

Just as the day changes to the night and then the day again. This way, you can win the most if you stay calm.

I wrote above that it is typical investor behavior to divert money from riskier investments to safer forms in times of crisis.

Yes, that’s what panic does. If you follow the crowd, you will have the same losses as everyone else. Making confusing decisions, will have confusing results just like anyone else.

If you already have securities, the first thing to keep in mind anyway: don’t panic-sell in response to a fall in the exchange rate! Do not panic! If you do this, you will obviously be left out of the reorganization that any downturn legally follows.

Also, you may not see your own money when you get low. Yet, 12 months after the low point of the biggest crises, the value of the given index was typically 20-70% higher.

Now that we’ve discussed what NOT to do, let’s see what you can do

Now, as a result of the coronavirus, the same processes are taking place as ever when anyone made a profit with the opportunities of the money market. You’ve read before about exactly how your investment can generate money.

If you already understand this or have someone to help you, you can take advantage of it. For example, you can “shop” either mutual funds or individual securities once the prices have fallen. Let’s say it’s not just the coronavirus that can provide this.

So the coronavirus, like any relapse, gives you the opportunity to get in if you haven’t already. And if you already have any securities, you can buy more of them. Here I put it forward so that if you have no experience, you would rather ask. It is cheaper to ask an expert a question than to buy blindly. You must have figured it out yourself, but I will describe it: not all securities are suitable for making a profit on it.

Which area for you is where you can gain the most according to your own risk tolerance, I can explain to you in a personal conversation. Contact us and you will meet a colleague with many years of experience in the field.

When is the most suitable entry point?

The low point of any crisis is only visible backwards, so without a sphere of magic, no one has the opportunity to consciously choose the deepest point.

Although the deepest part is over, to make sure you don’t miss out, the best entry point is now. Since the market is still down now and still showing significant movement, you can do it by entering at the same time. Or you use the cost average effect. Then you don’t have to watch the exchange rate on a daily basis, you just have to make one decision. Decide to stay calm even when gypsy children are popping out of the sky.

You can make an impulsive, momentary decision under stress, and these decisions rarely prove to be good.

There are two ways to find out which economic area is most appropriate for you. Either you already have an idea of your own that has been used so far, or ask us. Ask for an appointment and we will show you the options.

If you are trying individual securities on an individual basis, please beware of companies with high loan portfolios. In any crisis, and thus in the downturn caused by the coronavirus, it is inevitable that companies will lose all revenue. However, with a high loan portfolio, they cannot cut back on expenses accordingly, so their own operations may fluctuate.

Questions:

  1. How do you see the financial situation caused by the coronavirus yourself? Can you win on it? If not, what can you do to keep from losing?
  2. Based on the above examples, when do you think the order of the economy will be restored?
  3. What can you do to make the next crisis (because it will) affect you as little as possible?

What do you think about the topic? Feel free to comment or contact us here.

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