SINGAPORE (Feb 28): Global stocks traded sharply lower last week as the second wave of Covid-19 outbreak, this time outside of China, triggered heightened uncertainties. US stocks, which had demonstrated remarkable resilience thus far, even hitting fresh record highs, succumbed to heavy selling pressure. The Dow Jones Industrial Average, the most closely watched bellwether index in the world, fell 2,035 points or 7%, in the first three days of the week.

Positively, stock prices in China, the initial epicentre of the viral outbreak, have rebounded quickly from the initial steep selloff, even though volatility persists. The Shanghai Composite index fell 7.7% on Feb 3, the first trading day after the Lunar New Year break, in reaction to the worsening viral outbreak in China. Since then, however, the bellwether index has closed higher on 12 of the 18 trading days. As at Feb 26, the index was up 0.4% from before the holiday break. An obvious explanation is that, unlike a financial crisis, history has shown that economic recoveries from health scares tend to be quick and sharp. And data out of China suggests that the outbreak is being contained. The People’s Bank of China has injected massive liquidity into the system and cut interest rates and plans to buy short-term securities; the government also unveiled a slew of fiscal stimulus measures, including tax cuts and support for the worst affected businesses. Investors are expecting more to come.

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