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Will the coronavirus outbreak cause an ASX stock market crash?

Well, the news of the week so far has been dominated by the ongoing spread of the coronavirus. Both the S&P/ASX 200 (INDEXASX: XJO) and global markets had been enjoying a record start to the year and decade over the past few weeks, but this week that all came screeching to a halt.

So far, the ASX 200 has shed many of the gains of the last few weeks and many investors are probably wondering if things will get worse before they get better.

Is this a turning point for the ASX?

Unfortunately, my view is that the ASX was already vulnerable to a correction. Like a Jenga tower, the higher markets climb, the more susceptible they tend to be to bad news. What we’ve been seeing out of Wuhan, China, undoubtably qualifies for the latter tag. Given the ASX has just come out of one of its best years since the turn of the century, it’s hard to call the market anything but the former tag as well.

Markets tend to move violently on the back of 2 emotions: fear and greed. A disease outbreak is an event that naturally elicits a lot of fear and so I expect that any further spread of the coronavirus will translate into more pain for the stock market.

Predictably, stocks that have direct links to the travel industry have fared the worst this week. Qantas Airways Limited (ASX: QAN) shares were down 5.22% yesterday to $6.36 a share. Flight Centre Travel Group Ltd (ASX: FLT) were also heavily hit yesterday, as was Corporate Travel Management Ltd (ASX: CTD).

Export-orientated businesses like BHP Group Ltd (ASX: BHP) and Treasury Wine Estates Ltd (ASX: TWE) are also feeling the heat, with the latter plummeting almost 20% in morning trade today.

But we have also seen falls in other ASX blue-chips that don’t boast such close ties with what’s happening in China. All four of the big ASX banks recorded substantial losses yesterday, as did Wesfarmers Ltd (ASX: WES) and Telstra Corporation Ltd (ASX: TLS) – not companies you would say are directly affected by the coronavirus.

Foolish takeaway

From looking at what’s been happening on the ASX this week, I think that this is a situation that all ASX investors should be keeping an eye on. Yesterday’s market moves prove that investors aren’t going to discriminate when selling their shares on coronavirus fears. Just remember to keep a long-term mindset, and I think you and your portfolio will be fine!

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Motley Fool contributor Sebastian Bowen owns shares of Telstra Limited. The Motley Fool Australia owns shares of and has recommended Corporate Travel Management Limited, Flight Centre Travel Group Limited, Telstra Limited, and Treasury Wine Estates Limited. The Motley Fool Australia owns shares of Wesfarmers Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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