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Uncoordinated policies behind market collapse

Summary:
After more than a month of horrible news on the Covid-19 coronavirus outbreak, first in China and then globally, the markets have finally abdicated.For the whole of February, markets had managed to endure the first ups and downs, especially outside China. To begin with, the area of ​​contagion was expected to remain limited to China or, at best, to the rest of Asia. In addition, once it was understood that the impact on the Chinese economy was going to be very negative, the markets came up with the hope of a great stimulus plan to be carried out by Beijing, which filled them with bliss, to the point of recovering all of the losses that had accumulated since the epidemic began in Wuhan.For too long, investors continued to turn a deaf ear to the announcements by a large number of companies

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After more than a month of horrible news on the Covid-19 coronavirus outbreak, first in China and then globally, the markets have finally abdicated.

For the whole of February, markets had managed to endure the first ups and downs, especially outside China. To begin with, the area of ​​contagion was expected to remain limited to China or, at best, to the rest of Asia. In addition, once it was understood that the impact on the Chinese economy was going to be very negative, the markets came up with the hope of a great stimulus plan to be carried out by Beijing, which filled them with bliss, to the point of recovering all of the losses that had accumulated since the epidemic began in Wuhan.

For too long, investors continued to turn a deaf ear to the announcements by a large number of companies that their sourcing from China would suffer delays and disruptions. Investors had to wait for a company as big as Apple to announce a profit warning due to disruptions in its supply chain to realize what was happening and experience a market correction, although still moderate compared with what we have experienced during the past week.

Alicia García-Herrero
Alicia Garcia Herrero is a Senior Fellow at Bruegel and a non-resident research fellow at Real Instituto El Cano. She is also Chief Economist for Asia Pacific at NATIXIS. Alicia Garcia Herrero is currently adjunct professor at City University of Hong Kong and Hong Kong University of Science and Technology (HKUST) and visiting faculty at China-Europe International Business School (CEIBS).

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