The coronavirus correction is expected to continue today with the ASX expected to open lower this morning due to worries about the spreading infection numbers.
Over the weekend, Italy decided to quarantine a large area of Italy which includes Milan and Venice, with up to 16 million people affected. Yesterday in Italy the number of cases rose another 25% to 7,375 and the number of deaths increased by 133 in a day to 366.
The ASX 200 (INDEXASX: XJO) has already fallen 13% since 21 February 2020 and the drops this week are going to add to that pain.
When will the share market stop falling?
There are two separate questions for investors to try to come to terms with. When will the market stop falling and how low will the market go?
The share market's drop is not going to closely match the rise in global infection cases. The world is going to see a lot more cases over the next several weeks, but the share market is very unlikely to drop by up to 50% over the next few weeks. It took over a year for the share market to fall from its height to the bottom (just over 50%) during the GFC.
We won't know how low the market will go for some time. Governments and central banks are likely to try to support the economy as much as possible in the coming months.
How hard will regions like Europe, North America and Asia (excluding China) try to stop the spread of the virus? Will they quarantine different regions of the country from each other (like Italy)? Will they force people to stay in their homes for two or so weeks (like China did)?
Airlines like Qantas Airways Limited (ASX: QAN) and Air New Zealand Limited (ASX: AIZ) have already seen a painful effect on demand. Hotels, car hire, travel insurance and tourist destinations have already seen a hit. Time will tell how supply chains are being affected. Analysts are concerned big banks like Commonwealth Bank of Australia (ASX: CBA) could see rising bad debts.
It's very hard to guess when the share market will reach its lowest point. There is a fair chance that this could cause the decade-long bull market to end with how much supply and demand has been affected in various industries.
Will it be a 20% top-to-bottom fall? 30%? No-one knows. I think it would be a good idea for investors to keep putting money to work in regular intervals. When the recovery happens, the share market will be quick to respond because of how low interest rates are (and how poor returns you'd get from fixed interest).
If you could go back to any year this century to invest, you'd probably pick a point during the GFC because the share prices were so low. I'm taking the same mentality with this period, the market decline is disappointing, the infection spread is alarming, but we should keep investing regularly with these lower share prices.
