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Stock Market Lessons to Learn from the SARS Outbreak

30 Nov 2023

Introduction:

The global financial landscape is no stranger to unexpected disruptions caused by natural calamities. One such event that left a devastating effect on both public health and global financial markets was the COVID-19 pandemic. As per the World Health Organization (WHO), the novel coronavirus infected more than 771 million people and resulted in the death of approximately 7 million people across the world.

Another significant development that unfolded during the pandemic was multiple stock market crashes between February and May 2020. It sent shockwaves through the financial world, causing havoc among global investors. 

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However, the COVID-19 pandemic was not the first economic-cum-health crisis to hit the world and neither will it be the last. As an investor, you must remain patient and handle your investments diligently instead of engaging in panic selling and incurring huge losses. You can learn from past crises, especially those that have shaped the behaviour of the stock markets around the globe.

Lessons to learn from the SARS outbreak in 2002

Around 17 years before the COVID-19 pandemic broke, a global epidemic shook the entire world. The first case of Severe Acute Respiratory Syndrome (SARS) was identified in Guangdong, China, in November 2002, and subsequently, the virus spread rapidly worldwide. Besides infecting more than 8,000 people across 30 countries, the outbreak of the epidemic severely impacted the global stock markets.

The SARS outbreak provided valuable insights into how financial markets reacted to a global health crisis and offers lessons for investors that remain relevant even today. Let’s discuss some of those:

Lesson 1 – Market volatility is inevitable

One of the most crucial lessons you can learn from previous epidemics and pandemics is that market volatility is unavoidable. The SARS outbreak triggered significant volatility in global financial markets. Investors were unsure of the economic impact of the epidemic, leading to bulk selling, and subsequently, wild swings in stock prices. 

This volatility emphasised the importance of being prepared for sudden market movements and the need to create a diversified investment portfolio. As an investor, you should never be worried about or fear market volatility. Just remember it is very much a part of the game.

Lesson 2 – A few sectors are impacted more than the others

The SARS outbreak disproportionately affected certain sectors, such as travel, hospitality, aviation, and retail. Fear of contagion and lockdowns led to reduced travel and tourism, causing a ripple effect through the allied industries. Investors who realised the vulnerabilities of these sectors were able to adjust their portfolios accordingly. 

Hence, understanding the impact of a crisis on different industries is very crucial. It can help you make smart investment decisions during the difficult times. For example, diverging your investments from traditional sectors to emergency sectors such as technology and healthcare during a pandemic can fetch excellent short-term returns. 

Lesson 3 – Access to timely information is highly crucial

During the SARS outbreak, information dissemination was not as quick as it was during the COVID-19. The Internet and social platforms were yet to gain this much popularity, which impacted the spread of news regarding the damage caused by the SARS virus. As a result, the market volatility was not as high as it was during the pandemic in 2020.

Today, it becomes a challenge to protect your investments from frequent crashes. However, by staying aware of the developments and timely actions, you can safeguard yourself from incurring hefty losses.

Lesson 4 – Trust your government

Governments and central banks play a crucial role in mitigating the economic impact of the global financial crisis. In response to the SARS outbreak, several governments employed various fiscal and monetary policies to support the affected industries and boost the confidence of investors.

As an investor, you must closely monitor such developments before making hasty selling decisions. Place your trust in the government and wait for the markets to rebound. You can consider rebuilding your portfolio if the need arises. However, redeeming all the investments in panic is never a good idea.

To conclude

The SARS outbreak serves as a historical marker for stock market investors, providing valuable insights on handling their investments during crisis situations. You need to adopt a proactive and adaptive approach to investing. Try to anticipate market volatility, recognise vulnerable sectors, and have faith in government policies. 

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Related Articles: How to Open a Demat Account Without a Broker | Factors to Keep in Mind While Opening a Demat account | Factors to Consider When Opening a Demat Account 

 

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