We are looking at a pandemic that will have consequences both in the short and medium and long term. In particular, we need to understand the reaction of financial markets to an event that affects the whole world and not individual countries, as has happened in past years.
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The economy is highly likely to collapse either as a result of drainage of resources to control and treat to Covid-19 pandemic or the loss of productivity as a result of social distancing.
Stock market prices its financial assets in front of a current event (Covid-19), so all bearsh moviment we're seeing has alredy been priced. Nowadays each good info related to Covid will be priced and this will affect the price action in positive returns. For example, a desesaceleration in pandemic spread around the world will calm investors and encourage new investiments.
In Saudi Arabia the lock down has resulted in depletion of medications. There is no warfarin available. Antimicrobials are in very short supply. Shipping charges have increased significantly. The situation is likely to be similar in other countries. We must urgently determine which medications are effective for this conditionb to avoid wastage.
The economy can not survive this...
Dear Olga,
Though most stock markets are nosedived recently, the transitory effects will have prolonged impacts on economies and companies’ earnings because of coronavirus pandemic.
This is also evidenced by the fact that the Fed decreased very recently interest rates to zero levels and the markets keep nosediving. This is an indication that markets are already far sighting and factoring the long-term impacts of current world events because of coronavirus pandemic. I am afraid, but current world events will have major impacts on companies’ earnings, which will definitely led to many bankruptcies.
Prof. Dr. Mazin A. M. Al Janabi
Full Professor of Finance & Banking and Financial Engineering
EGADE Business School, Tecnologico de Monterrey,
Santa Fe Campus, Mexico City, Mexico.
https://www.weforum.org/agenda/2020/04/pandemics-coronavirus-covid19-economics-finance-stock-market-crisis/
In my opinion, Global business community is likely to be adversely affected. We are likely have declining stock prices which is likely to increase the investment potential of global corporations by attracting more capital. However, the projected slow down in the global economy will adversely affect demand and production and eventually push the world into a recession.
Have been forecasting a global meltdown well before COVID hit, largely due to demonstrable fragility in the economy, and many qualitative factors. Reviewing the level of debt in the system and its absolute growth over the last seven years, spurred largely by a low rate environment and deficit spending, little if any productivity gains were had. Yet a slew of debt was layered on. The various stimulus packages will only add to this growing situation. And further, the cost of debt (and conversely the fixed income market returns) have led to a liquidity migration into the equities and select real estate markets, which have asset become bubbles. The quality of employment is suspect with the level of "gig" employees and/or workers, the inequality gap and global poverty levels, including in the US (which using the same metrics as others) would rank the highest of OECD countries. And with a slowed economy and nearly twice the level of debt as in the Great Recession, but without the benefit of measurable monetary policy, we will likely see revaluations and devaluation efforts by sovereigns. COVID19 was a mere pin popping a bubbled economy.
One of the consequences of Covid-19 is the lockdown effect on the economy. This will hit earnings and output of goods and services. Then there is also the liquidity aspect where market rebounds on liquidity provided by Govt to counter the lockdown effects. End result is volatility. Markets are not stable. The initial violent reaction could be a worst case scenario with current intermittent rebound not sustainable. A vaccine is the panacea that will provide a basis for a sustainable market rebound.
https://www.boursorama.com/bourse/forum/1rPALNOV/detail/454576913/
When the SARS-CoV-2 coronavirus pandemic (which causes Covid-19 disease) began to develop in many countries and a lot of information appeared in the media, then financial markets, mainly capital markets, such as commodity exchanges, currency markets, and stock exchanges valuable, more specifically, investors operating in these markets behaved more nervously. In such a situation, when a serious economic crisis begins, in addition to sources not fully known, new types of factors causing the economic crisis, then the situation on financial markets shows greater nervousness, greater amplitude of changes in valuations of financial instruments and specific assets listed on these markets. When the first information appeared in the media that a new, perhaps the largest, global economic crisis was probably starting to develop for many years, many investors operating in the capital markets panicked the sale of shares and commodities. When from day to day more and more data on the deepening recession or prognostic data informing about a high probability of developing a negative scenario of a potential large decline in host growth appeared, then negative moods on stock exchanges were only getting worse. Due to this, the negative moods of stock market investors who operate on capital markets, commodity exchanges, stock exchanges, etc. largely present the current or forecasted situation of the economic downturn in individual sectors, branches in which enterprises operating on these markets and in the whole economy. Therefore, in this type of period of increased uncertainty, fear of financial losses, a significant proportion of investors make decisions under the influence of emotions. In this situation, behavioral behavior of investors dominates. Investors, trying to avoid situations of uncertainty and increased investment risk, accept a partial loss and sell out their assets that were listed on individual stock exchanges, commodity exchanges and other capital markets. However, in a situation where governments of individual countries began to implement anti-crisis, interventionist programs of socio-economic policy, including fiscal policy and monetary policy, the mood on capital markets calmed down significantly and there was a change in valuation trends on individual markets. I examined similar correlations on the example of an analysis of sources, economic effects, changes in the situation on financial markets, etc. in relation to the global financial crisis of autumn 2008.
Greetings,
Dariusz Prokopowicz
The impact of Covid 19 would be devastating on financial markets across the globe. Some of the reports mentioned that investors are withdrawing their deposits from their BO Accounts.
Currently (early May 2020), a significant proportion of stock market analysts and investment advisors forecast a second downward wave of asset valuations on the stock and stock exchanges. On the other hand, there are symptoms in many countries that suggest the beginning of the end of the SARS-CoV-2 coronavirus (causing Covid-19 disease) pandemic. However, the economies of many countries are already in a phase of severe economic recession. It will take some time for the situation on the financial markets to calm down and asset valuations on the capital markets to a greater extent than now correlate with the situation in the real economy.
Have a nice day, Regards,
Dariusz Prokopowicz
We have a working paper on this topic joined with Elena Shakina and Iuliia Naidenova : https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3574774
We'd be happy to receive you comments!
Olga Cucaro From my point of view, I thought that the market will respond differently, the pandemic may take longer than investors think, also, the pandemic has a different effect on the countries economy. Hence, the pandemic may stop manufacturing, tourism, ... etc. All these aspects will be effected then slow down the economy.
Dear Olga,
Though most stock markets (and oil prices) have nosedived recently, the transitory effects will have prolonged impacts on economies and companies’ earnings because of Covid-19 pandemic and health crisis.
This is also evidenced by the fact that the Fed decreased very recently interest rates to zero levels and the markets keep nosediving. This is an indication that markets are already far sighting and factoring the long-term impacts of current world events because of Covid-19 pandemic and the resultant health crisis.
I am afraid, but current world events will have major impacts on countries and companies’ earnings, which will definitely led to many bankruptcies worldwide. The recovery from the economic impact of the Covid-19 health crisis will take lot of efforts and prolonged period of time.
Prof. Dr. Mazin A. M. Al Janabi
Full Professor of Finance & Banking and Financial Engineering
EGADE Business School, Tecnologico de Monterrey,
Santa Fe Campus, Mexico City, Mexico.
Financial markets are still very nervous. Recently, the economic situation on the stock exchanges has been exerted not only by data on economic development forecasts for countries and large enterprises, but also by information such as progress in vaccine development by specific pharmaceutical companies, epidemiological laboratories, etc.
Greetings,
Dariusz Prokopowicz
There is no general and universal answer
The magic word in this context is called "expectations".
On should be aware of this.
Hi Olga Cucaro, I think savings mobilization would be slow along with fund will be withdrawn from the BO account, finally financial markets negatively react.
Olga, markets seem to be either stepping back as reflected in the downward trends in stock values given the scale of the challenges posed by COVID-19 or investors (at least the more daring ones) seem to be bolstering stocks as a way to resist and perhaps find a way out of the current crisis. Whichever, way, it is still early days to ascertain which of these measures might have a more strategic impact. Interesting...
Another world economic recession just as 2007 is looming.
Olga Cucaro John Mendy Md. Shakhaowat Hossin Dariusz Prokopowicz Jacek Bednarz
Financial market reactions in DMs and EMs will continue to differ. Despite record low-interest rates, there is currently no indication of an asset rotation in advanced economies. Low-interest rates and the central bank response function, not least forward guidance explain the divergence between asset-price valuations and the real economy. In EMs, much of the reaction is contingent on the resumption of capital flows to this region. However monetary policy will likely remain accommodative, suggesting upside in the middle term for capital markets, especially as a recovery takes hold and the virus wanes.
When in March 2020 information about the SARS-CoV-2 coronavirus (causing the Covid-19 disease) circulated in the media, financial markets reacted nervously. Increasing indices on stock exchanges in recent years have recorded a decline in the valuation of securities. In addition, long-term trends have also changed in the commodity and currency markets. However, these declines were moderate, comparable to the declines in the valuation of securities after the global financial crisis appeared in mid-September 2008, but with a slightly weaker scale of sell-off and stock market panic than in the case of the previous major financial and economic crises. The sell-off of shares was relatively short, many times shorter than in previous crises, which began with strong changes in stock market trends. So perhaps the financial markets were the earliest to anticipate the limited scale of the economic crisis, which was beginning to develop in many countries in March and April 2020. When central banks lowered interest rates and in the following weeks the governments of some countries announced the introduction of anti-crisis, interventionist measures to stimulate economic growth, they announced at press conferences planned to introduce the so-called Anti-crisis shields constituting the key programs of pro-development social and economic policies were then the downward tendencies on the stock exchanges as well as on the commodity and currency markets began to change the directions of trends. Thus, by carefully observing the reactions of financial markets to the information in the media about the development of the SARS-CoV-2 coronavirus pandemic, it was possible to predict the scale of the economic crisis. On the other hand, when analyzing the determination of the governments of individual countries to introduce the so-called Anti-crisis shields, announcements addressed to the society through the media before the launch of these high-budget interventionist programs financed from the sources of the state finance system and referring them to similar actions taken in many countries after the global financial crisis appeared in September 2008, it was possible to predict the reactions on the financial markets which appeared in the following weeks and months. On the basis of the above-outlined analyzes, some economic entities, listed companies, and investors operating on the financial markets benefited from the aforementioned changes in trends on the markets, e.g. in securities, and used funds obtained, inter alia, from the aforementioned Anti-Crisis Shields, they took over other entities, whose valuations fell sharply due to the short-term panic sale of shares by most small investors investing directly through their own investment accounts held in brokerage offices and houses and indirectly through investment funds. It is debatable whether such investment practices are fully compliant with business ethics and the principles of corporate social responsibility. These issues will probably be examined for years in the same way as after the global financial crisis of 2008.
Best regards,
Dariusz Prokopowicz
Here in Brazil, our stock market index, IBOVESPA, showed a remarkable crash, with all assets reflecting this suddenly drop after the first news announced about Covid spread in Europe and USA. But, incredibly, some assets recovered the prices in a fast bullish moviment, mainly in eletronic retail, technology and healht sector, in a rapid adaptation to lockdown restrictions. After the Central Bank decrease the mainly basic interest rate, Selic, others sectors, including retails, construction, car location, etc. increased their values. Before the Covid Panic, IBOVESPA was in 119000 points, the maximum historical value; during the panic, IBOVESPA dropped to 61690 points; today (2020/11/20) is in 106900 points. This reflect our resillience and robustness, with more potential to growth because some sectors do not returned to the values before Covid, for exemple, transportation, finantial, industries, etc. I would like to know others exemples in others contries, there is, for sure, some interesting challenger scenarios analyse this dynamics in front of the Covid Panic.
When I wrote my previous answers during the 1st wave of the pandemic, then there was a slump in the financial markets, including capital markets, stock markets and commodity markets, which was triggered by a strong stock market crash caused by the announcement by the World Health Organization of the global epidemic, i.e. the SARS-CoV-2 pandemic (Covid -19). However, when at the beginning of November 2020 the pharmaceutical companies Pfizer, Moderna and then a few weeks later also Astra Zeneca announced that they were finishing their test work on highly effective vaccines against Coronavirus and that they were starting mass production of these vaccines, then there was a short-lived euphoria on the capital markets, in these stock markets and in the medium term, good times have returned to these markets. Although much has not changed in the real economy at the end of 2020, the situation on the capital markets presents a picture of the economy that will appear in a few weeks or several months.
Best wishes,
Dariusz Prokopowicz
So much optimism in the above answers. I think otherwise. First, the forced slowdown due to Covid will have a ripple effect on the economic landscape. Banks and credit markets are already seeing higher delinquencies and losses, which will exacerbate as we move further into 2021. This will tighten credit, at a time when bank margins are at historical lows, thus bank profits will be slimmed and with the level of liquidity in the system not being deployed, bank balance sheets are inflated, read leveraged. With potential losses we will see a bank crisis more severe than 2008-2010. Not a single asset class like then, this is broader. Interest rates will have to rise as capital providers will be seeking risk adjusted returns, and when that happens, the equity markets will fall as excess liquidity, and not corporate performance, has buoyed the equity market for the last three years if not longer. Also, interest rates moving north will effect other interest sensitive classes, such as housing. When mortgage rates rise, affordability drops, thereby less demand. And then of course we have all the stimulus money pumped in by the respective Treasury Departments of the sovereigns. How many countries are now borrowed beyond their GDP? Move interest rates up, including treasuries and gilts, and debt services as a percentage of federal spending rises. Most of the stimulus plans, particularly in the USA, have little counter revenue generating elements. Sure, raise taxes at a time of economic uncertainly and weakness. Send more stimulus money in..... A vicious cycle. Then lastly, the global economic landscape will change over the next 5-10 years, with China and India growing their economies past the USA, and by a significant amount. A blend of demographics and technology. So if the USA is third in terms of size, with the others in the global framework still seek to use the USD as numeraire? Don't think so. If key markets, like oil, are no longer denominated in USD, what happens to the dollar? And the US economy in need of funding given the debt level. Yep, higher rates. So while we are obviously concerned with the pandemic and the direct effects, the timing has created a domino effect, in a world of shifting powers, authorities, and capacity.