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Coronavirus and market sentiment: Could this get worse?

Last week’s sharp fall in international monetary markets due to coronavirus-related newsflow has made traders jittery about what is coming subsequent. Prior to last week, the have an effect on on markets gave the impression to have a neighborhood component as Asian markets with regards to China suffered greater than others. But this changed last week. Even geographically distant markets, which had remained shielded from the virus-related detrimental sentiment till now, are reacting; and lots of of them are reacting violently.
Artificial intelligence-based marketplace sentiment measures have been efficient. Such a sentiment analysis displays clear courting between virus-related sentiment and marketplace efficiency. During the last two weeks of January, sentiment ratings went into the detrimental territory for a number of international locations owing to coronavirus. Latin American economies, akin to Brazil, and massive parts of Africa were an exception due to geographical distance from China.

On the other hand, sentiment ratings for Asian international locations akin to Thailand, Indonesia, Malaysia and Hong Kong stayed slightly depressed all through the last two weeks of January. India also saw a streak of detrimental sentiment round the similar duration, but it surely used to be related to its Union Budget, and the Indian marketplace staged a snappy rebound over the next couple of periods.

Overall, the scoop sentiment from coronavirus has performed a significant role in marketplace efficiency during the last 4 weeks. While, early on, some markets akin to Hungary and Turkey saw strikes that were idiosyncratic in nature and not related to the virus, it is truthful to say that a number of economies, especially those with regards to the epicenter, were heavily pushed by way of sentiment.

However, now the markets are reacting extra negatively and there was a pointy detrimental. The information sentiment has developed daily resulting in the marketplace gyrations. After a bit of rest over February 17-21, the sentiment soured once more over the weekend. As the markets opened on February 24, this detrimental sentiment sparked anxiety.

Last week, saw an international meltdown of the monetary markets. Wall Street’s fear gauge, the VIX Index, is with regards to its largest weekly acquire in historical past. Coronavirus has unfold in a couple of areas beyond Asia by way of now - Italy, Middle East, Brazil, to call a couple of. It turns out most likely that the virus-related sentiment will drive the marketplace for a minimum of a while now.

(Pankaj Sharma is spouse at EM Alpha)

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