By Umesh Desai
(ATF) More setbacks are in store for Asian markets after Wall Street had its worst day since 1987 with travel lockdowns, social isolation and distancing impacting economic activity. This has forced central banks to act with strong measures but leading many to question if they had moved too much and too quickly.
“The spread of Covid-19 to the US is causing a sharp contraction in spending on activities that involve travel and congregating in public,” said Joel Prakken, Chief US Economist at IHS Markit.
"Given the speed of these developments, we are taking the unusual step of updating our base forecast for the US between scheduled releases.
"We now expect a recession to begin in the second quarter."
The fast spreading virus which has claimed 7,138 lives and infected over 181,000 people globally remains on top of investor minds as Japan’s Nikkei 225 is down 1.5% and the Kospi benchmark is 3.2% lower.
The MSCI Asia Pacific ex-Japan index is 0.6% ahead of markets opening in Hong Kong, whose futures are down 2%.
Even after Wall Street’s precipitous fall overnight, Goldman Sachs said in a report US stocks could plunge 20% more after falling into bear market.
The Dow Jones Industrial Average sank 12.93%, the S&P 500 plunged 11.98%, and the Nasdaq Composite swooned 12.32%.
'Time for deleveraging'
Leaders of the Group of Seven (G-7) countries discussed the coronavirus epidemic via teleconference “to accelerate the national health and economic responses”.
European Council President Charles Michel said at a press conference after the call that the leaders expressed a "strong" will to cooperate to tackle virus.
One trader compared the Fed’s move as “filling up the tank of a car with four flat tyres”, but strategists said the moves are aimed at keeping the system working and the economic impact would not be immediate.
“Even during the GFC when the Fed cut interest rates, markets initially yawned – it is not necessarily useless. Things would have been worse, had they not cut. It just takes time to take effect. We are in a period when deleveraging is taking place and investors are reducing risk and buying government bonds. It will take a while for confidence to come back,” said Rajeev De Mello, head of the Development Committee at the Investment Management Association of Singapore.