Question

What do you think of the current market situation compared to what happened last week regarding the impact of Coronavirus on the stock market? The market lost more than 10% of its value last week, so it is considered to have had a market correction. Much of the reduction in value is related to concerns about the supply chain from China.

Answer 1

True, Much reduction in the value is related to concern about supply chain from china. Due to corona virus outbreak in china, manufacturing activities in china have stopped/reduced, as a result it is not able to supply required raw materials to the company located worldwide, resulting in low production in other country as well. Further replacement of chinese product is difficult as it is very large economy. Due to reduced production in US as non availability of raw material, company's top line will reduce and consequently it's net profit. Thus it's share price will decrease. This is being discounted in the market.

Considering current market trend, it seems market can further fall. As as of date corona virus is expected to present in china only, however recent report suggest that it is spreading through out the world. If this is the case than, government of respective countries will stop spending in infrastructure activities and other activities and will concentrate on stopping or creating medicine for said virus which requires huge investment. Thus spending of government towards development will reduce affecting stock market.

Thus it is advisable to close all long position