Nearly $140 billion was wiped from the S&P/ASX 200 yesterday, as the benchmark fell 7.3% or 455 points. It was the biggest intraday percentage fall for the local benchmark since the Global Financial Crisis.

The S&P/ASX 200 has fallen 19.6% from its February highs. A 20% drop marks a bear market.

In the first 10 minutes of trade this morning, the S&P/ASX 200 fell 3.6% or 215 points. Although it officially entered bear market territory, Dow Jones and S&P 500 futures are pointing to a rise on Wall Street tomorrow, which is helping drive buying sentiment locally.

At the time of writing, the S&P/ASX 200 regained some of these losses, trading down 0.61%.

Overnight in the US, the New York Stock Exchange triggered a temporary trading halt after stocks plunged 7% at the open. It was the first time a temporary halt has been implemented since October 1997.

Trading stopped for 15 minutes, and afterwards, continued on a decline that would see the S&P 500 shed more than 2000 points. At the end of trade, the S&P 500 fell 7.6%, the Dow Jones Industrial Average fell 7.79%, and the Nasdaq Composite fell 7.29%.

NYSE president Stacey Cunningham said the trading halt overnight serves to help build market resilience during times of volatility and fear.

“Shortly after today’s market open, the market-wide circuit breakers halted trading for 15 minutes,” she said.

“Market-wide circuit breakers enforce a trading pause so that investors have time to absorb information, better understand what’s happening in the market, and make decisions accordingly.”

If the S&P 500 falls 7% from the previous day’s close, the circuit breakers trigger a 15 minute trading halt, Cunningham said, while this is halted again if the 500 falls 13% before 3.25pm. If the benchmark falls 20% trading is halted for the rest of the day.

Oil markets are crashing at their worst rate since the Gulf War of 1991, after the OPEC cartel failed to agree on supply cuts aimed to address a slump in global demand caused by the COVID-19 outbreak.

Russia refused to back plans to cut production, and in retaliation, Saudi Arabia launched a price war for greater market share, slashing oil prices to US$4-7 a barrel and reportedly lifting production.

The US West Texas Intermediate (WTI) crude and global Brent Crude benchmark slid 24.59% and 24.1%, respectively on Monday. Currently, WTI is trading up 8%, while Brent crude is trading up 8.95%.

Meanwhile in the UK, the FTSE 100 suffered its biggest intraday fall since 2008, with benchmark bond yields dropping below zero for the first time. Germany’s DAX fell 7.94%, while Italy’s bourse fell 11.17%.

It comes as Britain announced its fourth death from the coronavirus, with 319 confirmed cases. While the Italian government has placed the entire country on lockdown as its confirmed coronavirus deaths rose to 463, with more than 9172 confirmed cases of the virus.

IG market analyst Kyle Rodda said global markets conditions are “panicked”.

“Already vulnerable amid the unfolding coronavirus crisis, Saudi Arabia’s pledge to flood global oil markets with extra supply kicked market participants in the guts at precisely the worst possible time,” he said.

“The tumble in global stock markets looks familiar to what’s been experienced the last three weeks. But there was a difference to yesterday’s sell-off.

“Market fundamentals have changed again, and they’ve changed for the worse.”

Similarly, Origin Asset Management partner John Birkhold said the spreading COVID-19 virus had triggered a mass sell-off.

“We are seeing wealth destruction on an epic scale triggered be the increasing reality of a global pandemic,” he said.

“Since February 20, when the ASX hit a record high of 7289.7, it has lost $440 billion in market value.

“Local damage is however dwarfed by global wealth contraction with the US market alone losing US$5.7 trillion from its all-time highs a mere three weeks ago.”

Birkhold said the long-running bull market, which near reached an 11-year run, clouded investors views of the risks involved in equities.

“The problem with a long-run bull market is that investors forget what can happen when things go badly. The last few weeks have been a stark reminder of the implicit downside potential of equity markets,” he said.

“With the increasing likelihood of a global recession, all market participants could get badly hurt, particularly if trading on margin.”

He recommends investors with a long-term view hang on tight.

“For Australians, who’ve gone over 20 years without a recession, it’s easy to forget what can happen when things go bad,” Birkhold said.

“Long-term investors need to remember that in turbulent waters, it’s usually best to stay in the boat rather than trying to change strategies. However, investors need to be able to withstand another drop, particularly given that markets typically fall 30-40% during recessions.”

It comes as Prime Minister Scott Morrison told a crowd of business leaders at the AFR’s Business Summit the economic impact of the coronavirus in Australia could be worse than the Global Financial Crisis.

This, he argued, is due to our close proximity and trading reliance on China, pointing to the slowdown (and shutdown in some cases) in business and consumer activity in China and its domino effect on supply chains around the world.

The impact of COVID-19 on our economy would only be made worse if the virus had a significant impact on the health of our workforce, Morrison said.

Morrison said the government was primarily focused on controlling the biological impacts of the disease, rather than its economic waves.

The plan?

“Slow the spread of the virus and to resource and manage scaled-up demand on our health system,” Morrison said.

While on the economic front, the government aims to “keep people in jobs, keep businesses in business and ensure we bounce back stronger on the other side,” he said.

(Source: Financial Standard)