Economist Mohamed El-Erian warns investors not to buy declines in the stock market like they might have done before the coronavirus.
“For a long time I thought the market sentiment was so strong that we could overcome a mounting list of economic uncertainty,” the Allianz chief economic adviser recently told CNBC.
“But the coronavirus is different. It is big. It’s going to paralyze China. It’s going to cascade throughout the global economy,” the former Pimco CEO said.
“Importantly, it cannot be countered by central bank policy,” the Newsmax Finance Insider added. “We should pay more attention to this. And we should try and resist our inclination to buy the dip,” he said.
Meanwhile, world markets bounced on Tuesday, with Chinese stocks reversing some of a previous coronavirus-related plunge amid official efforts to soothe nerves and both Europe and metals scoring their best day of the year so far.
Though sentiment remained fragile with the virus still spreading and oil slumped near 13-month lows, dealers seemed to have rationalized the worst of their worries, Reuters explained.
Despite the relative market calm on Tuesday, the outbreak continued to generate unnerving headlines with Hong Kong reporting its first coronavirus death — the second fatality outside mainland China — as the overall death toll reached 427.
"At the start to the week there was a fear that when China reopened there would be further disruption to the markets ... (but) investors are tentatively going back into risk," said MUFG strategist Lee Hardman.
In an effort to stop the plunge, China's state-backed Securities Times published an op-ed on Tuesday to call on investors not to panic.
That followed moves by China's securities regulator on Monday to limit short selling and stop mutual fund managers selling shares unless they face investor redemptions, according to Reuters.
China's central bank has flooded the economy with cash while trimming some lending rates, but analysts suspect more will be needed to offset economic fallout from the virus.
"Given the extent of the shutdowns in China as well as the rapid rise in the virus that is likely to continue through March or April, a significant hit to China and regional growth is very likely," said JPMorgan economist Joseph Lupton.
"We would assume that in addition to bridging any funding stresses, fiscal policies will need to be ramped up to support growth once the contagion gets under control."
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