If not warm weather, then global Recession may be the only way to contain the coronavirus

As coronavirus spreads, it possesses a very difficult situation for a country like India with a population of over 1.3 billion.

So far, we have about 110 cases, but it is hard to imagine if that’s the right number considering the rapid spread and number of cases in other countries.

We have seen Europe and now parts of the US forced to lock down the country in order to save lives. In the US, New Jersey is the latest state to announce statewide curfew and President Trump said he expects the situation to be like this until July or August. That would mean slowdown extending into the third quarter and pushing the US into recession.

As per some estimates, In the USA, over 100 million people may get infected by the coronavirus. India can be more optimistic because of the following 2 factors

1. India has warmer weather. Will that help India, is to seen in the next few weeks.

2. India has fewer people and tourists coming in from China and other countries hit very early from the virus.

If the weather does not play a role, and we are looking at the spread of the virus in India, that can be catastrophic for the people.

As cases spike, it will put a lot of pressure on health systems and hospitals and no country has enough resources to handle all the cases.

So far, we have seen the majority of cases in higher latitude between 30 and 50. So, this virus seems to thrive in colder weather.

The primary focus at this time has to be to save lives even at the cost of short to medium-term economic pain. And, that is also the key for faster economic recovery.

We are not expecting a therapy before summer and a vaccine may take another 12-18 months, although phase I trial started today 2-3 months ahead of the schedule.

The way to save lives, for now, is to buy time until then. And, for that, we need tough measures like social distancing, lockdown and to curb the economic activities.

We have a double whammy effect on the economy, demand destruction and supply disruptions.

This will affect small businesses, the travel sector, and consumer sentiment. Our goal is to minimize the effect on jobs.

But, that’s probably the medicine we need to contain the virus and save human lives.

If we are able to contain the virus in the next couple of months or by summer even with the recession, that may be one of the better scenarios based on how bad it can get.

Recovery:

Right now, few people are expecting “V” shape recovery. It looks more like U shape or L shape. Once the economy shuts down, you cannot bring it back by turning a knob. People who are not traveling or going out will be hesitant to travel even right after the virus subsides. Of course, there will also be pent up demand, but it will come back slowly.

If its U-shape recovery, the economy may bounce back in a few months. If it is L shape recovery, then bounce takes longer. And, the market will be volatile till then.

The best thing for the market is to get through the crisis as soon as possible.

Advice for investors: I would advise investors to be prudent and patient. And put money to work only on dips. Cash is king during the recession and they may be able to get a good bargain with patience. Investors have to make a choice based on their risk profile. If anyone buys at 20% down, the market can go down further and they may have to ride the downturn. If they wait, they may miss the bottom. Every investor has to make a decision for themselves, if they are okay with some downside risk for long term gains or they don’t want any downside in exchange for missing out what seems to be a bargain as compared to where the market was a month back. I would suggest investors do something in the middle, i.e., put money to work as the market goes down in steps. For very risk-averse investors, the equity market may be too volatile.

Yes, this is a great opportunity to build long term wealth. but, the most important thing right now, is to take care of yourself and your family.

Note: The views expressed in this article are solely mine and please make investing decisions after speaking with your financial advisor about your individual situation.