FFor Nobel Prize winner Robert Shiller, capital markets are increasingly driven by stories rather than hard facts. A new narrative is currently chasing the old story on the stock exchanges. This new narrative is troubling and says: Global industrial society is vulnerable to pandemics.
At the beginning of the year, the old story seemed unshakable, which was as follows: The central banks immunize the markets against any injustice, be it global profit erosion, the risk of trade wars, the Middle East conflict or Brexit. But now everything is different.
With the international spread of the corona virus, what the marketers call a black swan (“Black Swan”) now appears to have occurred, an unpredictable event that questions everything. “The problem for most investors is that they are unprepared for this type of risk event – a real black swan, the consequences of which are unpredictable,” said Neil Wilson, chief market strategist at analysis firm Markets.com.
“Selling” is the diagnosis for market participants. The actors took the new reports surrounding the virus as an opportunity to part with all forms of investment that are considered risky. According to the simple motto: “Everything that has risen last has to get out”, they mainly sold shares on all stock exchanges at the beginning of the week.
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The German stock index (Dax) lost 2.8 percent on Monday. On Wall Street, technology stocks in particular were under selling pressure, which had been in high demand in the past few weeks. The US tech index Nasdaq slipped up to 2.4 percent during the day. The Asian markets also posted heavy losses.
The Japanese Nikkei ended the trade more than two percent in the red. The fact that there were no major disruptions on China’s stock exchanges was due to the fact that the markets there are closed due to the New Year celebrations.
Overall, a price of $ 1.7 trillion evaporated on the global stock exchanges. This corresponds to Canada’s annual economic output. This massive loss of prosperity was only caused by the change in the narrative. However, the markets were particularly vulnerable to such a setback.