The coronavirus is causing the share market to turn into a bear market.
Looking at Australia, the S&P/ASX 200 Index (ASX: XJO) is down around 30% since the falls started. It already ranks as one of the most painful periods for investors in living memory. How much further will it fall?
Could it fall as much as 50%?
Someone would need a crystal ball to accurately predict what the lowest point of the share market will be during this. It's impossible to say for certain. There is a lot of fear flying around.
Looking at the ASX during the GFC, at its worst point it fell just over 50%. But for most of the GFC, the fall was less than 50%.
There are several things that make this quite different to the GFC. The first is that it's obviously a healthcare problem, not a loans & liquidity event. It's much harder to predict and contain what's going on. A decade ago it was the banking system in the northern hemisphere which sent the economy into meltdown. Right now it's the wider economy that's having the problems. This side of things could make the share market fall 50% or more. Some people think the coronavirus impacts will be worse for Australia than the GFC was.
However, on the positive side, coming into this Australia's banks like Westpac Banking Corp (ASX: WBC) and Commonwealth Bank of Australia (ASX: CBA) are strongly capitalised to survive through events as painful as this. Indeed, a lot of industries have better balance sheets than in the past, though this coronavirus event is truly unique in how rapidly and totally it has shut down most of society.
Another big difference is the amount of government support for the wider economy. The banking system was supported during the GFC, but now huge numbers of employees and businesses are being supported with packages. The quicker the economy can go back to normal after the outbreak is under control, the quicker the share market will bounce back too.
But with the growth of the infections (and, sadly, deaths) we're seeing here and also overseas, I think it could be some weeks or even months before investors feel confident that the worst is over.
Foolish takeaway
I don't think we've seen the last of the falls. It's quite likely that the market will keep falling if the situation deteriorates here and/or in the US. I've been buying my favourites at lower prices and I plan to keep investing more money in shares if they keep dropping.
