Following a tumultuous 48-hours for the global markets triggered by the jitters over the spread of the coronavirus, stock indices around the world took an absolute hammering. Thursday (February 27) and Friday trading saw declines not seen since the fourth quarter of 2008 and the first quarter of 2009 when the global financial crisis was at its peak.
The Vix, which is an indicator of expected volatility in U.S. stocks, is at its highest level since August 2011 and fast approaching an index level of 50, according to Refinitiv data. The MSCI All Country World Stocks Index also saw major falls of over 10% for the week equating to a loss of over $5 trillion.
In the U.K., the country’s blue chip FTSE 100 index fell 11.1% compared to last week wiping £210.3 billion ($270.2 billion) off the value of its constituents closing on Friday at 6580.61 points, down 215.79.
The last time the index declined more in a single calendar week was the week ending October 10, 2008, where it declined 14.32%. The selloff also marked the second-largest weekly decline over the last 20 years.
Predictably, retail, travel, finance, mining and oil and gas stocks took the brunt of market panic in Asia, Europe and North America. Declines in the latter sector came as no surprise since oil futures also took a massive hit.
The Brent crude front-month futures contract ended Friday’s trading down 13.64% or $7.98 at $50.52 per barrel, while the West Texas Intermediate slumped to $44.76 per barrel, posting a weekly loss of 16.15% or $8.62.
And in sync with the price slump and oil demand concerns, here’s a selected Big Oil casualty list using Reuters data – ExxonMobil (NYSE:XOM) ended down 18% week-over-week, Chevron (NYSE:CVX) -16%, Total (EPA:FP) -15%, BP (LON:BP) -15% and Shell (LON:RDSB) -13%.
Venturing further afield down the extraction industries pathway, metals and mining giants BHP (LON:BHP), Glencore (LON:GLEN), Rio Tinto (ASX:RIO) and Vale (BVMF:VALE3) all saw their stocks plummet on average by 16% week-over-week, while Anglo American slumped by 17%.
Given mining, metals, oil and gas sectors are major constituents of pensions, savings and 401(k)s either side of the pond; panic for the many could be an opportunity for some. Essentially, until this week global markets had been pretty complacent shrugging off the impact of the coronavirus outbreak. However, now most appear to have done a complete 180 degree turn from complacency to complete panic.
Investors piled into safe havens this week on growing concerns the coronavirus outbreak will hit the world economy and impact corporate profits. When most are panicking and selling, using billionaire investor Warren Buffet’s mantra of buying when others are fearful could yield positive pricing gains and opportunities to buy coveted dividend paying blue chips on the cheap.
In fact, with markets in correction territory, panic-selling, mis-pricing of high quality equities, and lower entry points, this could turn out to be “one of the key buying opportunities in the last 10 years,” says Nigel Green, CEO and founder of deVere Group, one of the world’s largest independent financial advisory and services organizations.
“Some of the most successful investors will embrace volatility to create, maximize and protect their wealth. In the current volatile environment, investors – including myself – will be revising their portfolios and drip-feeding new money into the market to take advantage of the opportunities whilst reducing risk at the same time.”
Of course, no one knows for sure what will happen in the immediate future but muted argument in trading circles is that now would be the time to buy decent energy and mining stocks on the cheap since their declines have been steeper relative to other sector stocks such as technology.
Many are calling it the ‘coronavirus discount’. Afterall, it is possible use the return of volatility to one’s financial advantage via prudent bargain-hunting.
Disclaimer: The above commentary is meant to stimulate discussion based on the author’s opinion and analysis. It is not solicitation, recommendation or investment advice to trade energy stocks, oil and gas futures, options or products. Oil and gas markets can be highly volatile and opinions in the sector may change instantaneously and without notice.