UNTE, Sittie Ainna A.

ACT171 - Ff
Explanation:
For me, it's much better to keep the markets open, citing companies' capital-raising
needs and saying "pent-up issues" can occur with closures. As fewer people are able
to participate in the markets, it does expose the market to more volatility. It's a tough
situation, and of course it's not desirable. But as a short-term measure it may make
sense.
Given that sentiment is a strong driver for equities at present, one can look at the
Chinese market and the extended Lunar New Year holidays as a comparison. The
latest shutdown comes in tandem with the lockdown of the capital region and could
aid in containment efforts in the short term. If the situation improves, this could work
out positively for the market and reduce the volatility in the short term as it did China
even if the market returns to some adjustments initially. The drawback would be if the
situation continues to worsen, that could see to further panic selling when the market
reopens, though current trends does suggest increased social distancing does help with
the coronavirus situation.

In contrary, I think it could be a smart move because the market is already in hysteria.
Sometimes, taking a step back allows investors to rethink their position and digest the
flood of information out there. This is a health crisis we are facing and it seems the
market reaction has been too exaggerated.

This news article is related to our recent lecture about Financial Markets. Central
banks buy and sell securities in the secondary market for the attainment of its policy
objectives, and for the promotion of maximum employment and stable prices within
the economy. When central banks purchase securities, they inject liquidity into the
system and thereby give the economy more fuel to stimulate economic activity. This
stance is described as an “easing” or “expansionary” policy which may be called for
in times of slower employment growth or a potential economic downturn. On the
other hand, when central banks sell the securities, they soak up the liquidity in the
market. Policymakers call this as “tightening” or “contractionary” monetary policy –
tapping the brakes to slow down the car and restrain spending when price stability is
at risk due to higher-than-desired inflation. (Laura Hopper, www.stlouisfed.org)
What is peculiar in these market operations is that central banks do not buy in the
primary market, but deal only in the secondary market. This is because central banks,
especially those vested with financial autonomy, generally are not allowed to grant
credit to the government. An outright purchase of securities from the Treasury is
tantamount to a grant of credit to the government; whereas if central banks purchase
from security holders, these are transactions between them with the securities only
serving as underlying instruments.

Takeaways:

 The Philippine Stock Exchange is the first to suspend trade until further
notice to halt the spread of the Covid-19 outbreak
 This comes as President Rodrigo Duterte widened a month-long lockdown of
Manila to the entire island of Luzon, home to 57 million people
 Shutting financial markets during times of crisis is extremely rare but not
without precedent