Despite high levels of U.S. and European stocks, Goldman Sachs warns that the coronavirus’ impact could bring it all toppling down, according to the Financial Times on Wednesday (Feb. 19).
The bank said the risk of a correction in the stock market is high and warned that the impact of COVID-19 would possibly be more significant than investors thought.
Goldman Sachs analyst Peter Oppenheimer said the bank believes that the risk of the coronavirus against the stock market has been “underestimated.”
A correction is defined as a drop of 10 percent from a recent peak.
The remarks come just after Apple announced earlier this week that its revenues for this quarter would likely not be as strong as initially forecast. That’s because of the coronavirus’ hit to marketing and supply chains that help Apple put together its iPhones and other products in the region.
Due to easing financial conditions and lower bond yields, equities and valuations have seen a boost, and global stocks have sharply risen, Oppenheimer said. He said that also leaves markets more vulnerable to earnings disappointments.
Corporate fears regarding the coronavirus have not receded in recent weeks, as the virus has killed over 2,000 people, infected tens of thousands of others, and left companies in the region without valuable work staff, thereby slowing production rates. Also, tourism has been affected, as visitors to and from China have been subject to scrutiny as to whether they have the virus.
And after the coronavirus is eventually resolved, other threats loom, for instance, takeovers and acquisitions could be on the horizon. One such case has already been evident, with the Chinese government in the Hainan province taking control of the conglomerate HNA Group, intending to sell off some assets.
Meanwhile, neighboring countries are preparing for the worst, with South Korea, Singapore and Japan all bracing for impact and preparing to reassess funding.