Coronavirus: Italy, France offer hope for stock markets

The latest COVID 19 numbers coming Italy and France — the two western countries that have put the strongest ‘social isolation’ measures in place — provide hope and a way out for countries such as the US, UK and Germany, as well as for the global financial markets.

According to the latest data on the infection, the implementation of strict isolation measures in Italy and France are starting to bear fruit.

Even in Spain, which was a little late to put in such measures, the number of new cases of Coronavirus COVID 19 are starting to plateau out.

In Italy and France, the number of new cases are on the decline (see charts below).

Spain | Source: Worldometer

On the other side are countries such as the UK, the US and Germany, where the number of new infections continue to rise fast.



The diverging trends between Italy, Spain and France on the one hand and the US, UK and Germany on the other clearly point to one conclusion — countries that have implemented strong social isolation measures are the ones that are bringing down the number of new infections.

In other words, social isolation does indeed work.

Morever, France, Italy and Spain are not the only countries where this policy has yielded results. China and South Korea too used the policy of isolation and quarantining to successfully contain the spread of the virus.

However, there were doubts about whether this strategy — which requires a high degree of voluntary cooperation from the people — will work in more individualistic societies, such as those of Europe and America.


The latest numbers indicate that they do, and this is good news for countries such as the US and the UK, which have not yet put in place the kind of isolation measures that France, Italy and Spain have.

Given the overwhelming evidence that such measures do work, and that the number of cases increase almost geometrically in their absence, these countries too are also likely to be forced to put in place similar measures by the end of this week.

Governments in these countries have already softened their earlier position on the outbreak after a group of epidemiologists warned that the virus will claim more than 1 million lives in the US and about 250,000 in the UK in the absence of tough containment measures.

US President Donald Trump, who on March 9 was busy highlighting the relatively small number of people being killed by the Coronavirus compared to the common flu, has now started retweeting videos about the importance of ‘social distancing’.

Similarly, UK Prime Minister Boris Johnson, who was talking about letting the virus run its course last week, yesterday acknowledged that Britons now need to put ‘physical distance’ between each other, and that his government “will do whatever it takes”.


An aggressive containment strategy in the UK and the US — expected over the next two-three days — will likely come as much needed reassurance for global asset markets, which have seen a sharp sell-off after it became clear that these government’s initial, targeted approach completely failed to prevent the virus from spreading into the broader community.

Stock markets, which have fallen about 30-35% from their recent highs over the last two weeks, are likely to stabilize and subsequently reclaim much of their lost ground if these countries can arrest the rising trend of new Coronavirus infections.

Despit this, given that the virus is unlikely to be 100% eliminated and may keep coming back sporadically, it is likely to have longer-term implications for global economic growth, and this can prevent asset valuations from touching their pre-COVID 19 levels.