“I just closed my eyes and put my head in the sand like an ostrich,” Francis Lun, CEO of Geo Securities, said last Monday as the Hang Seng Index began a tumble that would lead to its worst one-day plunge in two years. Hong Kong’s benchmark would end the week in a bear market. The previous one – sparked by the 2015 China stock meltdown – took two years to dig out of.

This week started early with a bang, as the US Federal Reserve moved Monday morning Hong Kong time to cut its benchmark interest rate by a full percentage point to nearly zero and increase its bond holdings by US$700 billion. US futures plunged. The step came a day ahead of a teleconference call of the Group of Seven nations to talk about the coronavirus.

Asia markets tumble, as US Fed cut fails to calm coronavirus fears

Other market-moving news is anticipated this week.

Investors can calm themselves a bit by planning for continued turbulence. Regarding Hong Kong stocks, analysts advise using “up” days to trim portfolio vulnerabilities and seeing wretched days as opportunities to buy virus-battered 5G and new-economy stocks.

Alex Wong, director of asset management at Ample Capital, is likely to remain bleary eyed from lack of sleep as he stays glued to market action as it unfolds around the globe.

“Almost all days, I worked until 2am, and then at 4 o’clock I just get up,” he said. “Just two hours of sleep. Because it has been extremely volatile … of course, I was exhausted.”

Hong Kong’s benchmark ended down 8.1 per cent for the week, falling as much as 7.4 per cent in Friday intraday trading, the most since the global financial crisis in 2008. The turmoil comes as the city has not only been hammered by the coronavirus, but also by the US-China trade war and months of anti-government protests, pinning down the economy in recession and roiling stocks tied to everything from airlines to property developers and retailers.

Friday’s close of US markets capped the world’s worst trading week: a combined US$7.7 trillion – or 12 per cent – of global market capitalisation had been wiped out in just five trading days, according to the MSCI All-Country World Index. In New York, the Dow Jones Industrial Average and the S&P 500 both fell into bear territory last Thursday as they each crashed nearly 10 per cent. That was the worst daily performance for either index since October 19, 1987.

Also tanking last week were asset classes traditionally considered “safe havens” (think gold, for example) as well as bonds, both of which usually move in the opposite direction from stocks, while bitcoin fell more than 50 per cent before recovering a bit.

The MSCI All-Country World Index’s fear/greed indicator – which since 1988 has tracked the ratio of buying to selling momentum – reached a record fear level on Thursday, according to Bloomberg data. The benchmark has plunged 22 per cent from an all-time high a month ago.

China’s economy suffered dramatic collapse in warning to rest of world

At the heart of the sell-off is the possibility of a global recession sparked by the pandemic and efforts to contain it, as public life grinds to a halt in the US and Europe amid rising cases of infections.

“[It is a] chaotic situation. Everyone has lost their confidence,” said Castor Pang Wai-sun, head of research for Core Pacific-Yamaichi. “The coronavirus situation still seems unable to be controlled in Europe and the US … It will create a global economic recession. The likelihood is very high.”

A handful of countries – Indonesia, Italy, South Korea, Spain, and Turkey – have banned all short-selling in their stock markets to ease the escalating selling pressure.

But even in the midst of the chaos, some lucky traders are still finding ways to cash in.

One rookie Hong Kong investor watched in disbelief as her week-old shares of US-listed Inovio Pharmaceuticals shot up more than 300 per cent on coronavirus-testing news. Sensing danger, she jumped out as the drug maker hurtled downward. She managed to pocket a 175 per cent gain.

“Oh, man! Don’t even have words to describe how I feel,” said the 24-year-old trader, who asked to be identified as Tracy. “Simply ecstatic!”

Likewise, countless US market watchers were in high spirits after all three main American indices rocketed so much in the final 30 minutes of Friday’s trading that they ended the day more than 9 per cent up. Yet since March 6, that trio – the S&P 500, Nasdaq and Dow Jones – has seen a wipeout of a combined US$3.87 trillion in value.

Other big losers: Tokyo’s Nikkei has dropped US$524 billion, London’s FTSE100 has shed US$471 billion, China’s CSI 300 has lost US$301 billion, and the Shanghai Composite has shrunk US$285 billion. Meanwhile, Hong Kong’s Hang Seng Index is down US$184 billion.

“The market will keep on watching what measures governments and central banks will roll out to counter the impact of the pandemic,” said Gordon Tsui, chairman of the Hong Kong Securities Association.

“An effective vaccine or a strong signal that the disease is under control globally will boost markets to their pre-crisis normal level. But before that, markets are likely to continue experiencing massive ups and downs,” said Tsui, who advises investors to look at stocks with stable dividends and at new-economy stocks – like Tencent and Alibaba, the owner of the South China Morning Post – while their valuations are beaten down.

This week will be tricky, says Alan Li, portfolio manager at Atta Capital.

“Those [stocks] that may rebound will have business that benefits from the virus or policies taken against the virus, like online shopping, online classroom, office – like remote meetings and video communication – and medical equipment, like ventilator manufacturers. And those that benefit from monetary easing, such as gold, treasury, property,” Li said.

“However, investors should avoid those sectors whose fundamentals were destroyed by the virus’ spread, like retail, travelling, aviation and logistics.”

But Kenny Wen, wealth management strategist at Everbright Sun Hung Kai, warns that the markets are too treacherous for bargain hunting. Investors will be happier later if they are sitting on a stack of cash once markets bottom out, he says.

“It is still too early to buy virus-battered stocks,” Wen said. “We suggest if [investors are] holding a high portion of stocks, they should use a rebound to trim down exposure, rather than chasing the rally.”

On the other hand, “knee-jerk” selling by panicking traders could result in their missing rebounds, says Martin Hennecke, Asia investment director at St. James’s Place Wealth Management.

“Selling out to go into cash until everything seems safe again could result in missing rebounds … having to buy back in at a higher level, and potentially being taken down again when the next crisis emerges, getting whipsawed in the process,” Hennecke said.

Hong Kong lowers interest rate after US Fed’s emergency act; stocks slide

Many stock traders are looking to China, where the virus hit first, for clues about how the crisis will play out. The Shenzhen and Shanghai stock markets have quickly recovered lost ground. The mainland’s benchmark Shanghai Composite Index began this week down just 12 per cent from a high set in April 2019.

China stocks’ divergence from the rest of the world is no surprise to local traders. While coronavirus cases are still exploding in the US and Europe, China is now reporting few new infections.

China probably stands to benefit economically from the global mayhem, as disruption to production in the rest of the world may increase demand for Chinese exports and slumping crude prices may reduce the risk of runaway inflation, according to China Galaxy Securities. Chinese stocks may also get a boost from the fact that their price-earnings ratios tend to be more favourable for investors than those of the Dow and the S&P 500, says Chuancai Securities.

“China is ahead of other countries in containing the novel coronavirus and that gives support to the pace of factory reopenings and the economy,” said Chen Li, an analyst at Chuancai Securities. “If production resumes smoothly, infrastructure and consumer sectors will be the two direct beneficiaries.”

Still, there are doubts about whether China’s resilience will be sustained. Haitong Securities argues that the nation’s auto and semiconductor industries, which rely on imports of parts and raw materials, will suffer from disruption of the global supply chain.

Chinese investors may have overlooked the probability that a global recession will eventually take its toll on every country and may be too optimistic about the outlook of yuan-denominated stocks, according to Hong Hao, Hong Kong-based managing director of Bocom International Holdings, the investment banking unit of Bank of Communications.

“Even if China is now on track to go back to running at full capacity at the end of March or early April, the rest of the world probably isn’t. And China cannot play a group sport all by itself,” he said. “Investors should take note of such recessionary risks further in the horizon. So, is China the herald of global market recovery, or a mispriced asset? The chance of the latter has risen.”

So, trying to make sense of the markets’ direction in these turbulent times isn’t likely to get easier.

The challenge for investors during this chaotic time may best have been summed up in the 1930s by economist John Maynard Keynes: “The market can stay irrational longer than you can stay solvent.”

Additional reporting by Louise Moon and Martin Choi