Coronavirus and market sentiment: Could this get worse?

By Pankaj Sharma Last week’s sharp fall in global financial markets due to coronavirus-related newsflow has made investors jittery about what is coming next. Prior to last week, the impact on markets seemed to have a local component as Asian markets close to China suffered more than others. But this changed last week. Even geographically distant markets, which had remained shielded from the virus-related negative sentiment until now, are reacting; and many of them are reacting violently.Artificial intelligence-based market sentiment measures have been effective. Such a sentiment analysis shows clear relationship between virus-related sentiment and market performance. During the last two weeks of January, sentiment scores went into the negative territory for a number of countries owing to coronavirus. Latin American economies, such as Brazil, and large parts of Africa were an exception due to geographical distance from China. On the other hand, sentiment scores for Asian countries such as Thailand, Indonesia, Malaysia and Hong Kong stayed quite depressed during the last two weeks of January. India also saw a streak of negative sentiment around the same period, but it was related to its Union Budget, and the Indian market staged a quick rebound over the next couple of sessions. 74424446 Overall, the news sentiment from coronavirus has played a major role in market performance over the last four weeks. While, early on, some markets such as Hungary and Turkey saw moves that were idiosyncratic in nature and not related to the virus, it is fair to say that a number of economies, especially those close to the epicenter, were heavily driven by sentiment. However, now the markets are reacting more negatively and there has been a sharp negative. The news sentiment has evolved daily leading to the market gyrations. After a bit of relaxation over February 17-21, the sentiment soured again over the weekend. As the markets opened on February 24, this negative sentiment sparked nervousness. Last week, saw a global meltdown of the financial markets. Wall Street’s fear gauge, the VIX Index, is close to its biggest weekly gain in history. Coronavirus has spread in multiple regions beyond Asia by now - Italy, Middle East, Brazil, to name a few. It seems likely that the virus-related sentiment will drive the market for at least some time now. (Pankaj Sharma is Co-Founder of EMAlpha)

from Economic Times https://ift.tt/2TbsTfz