Last December the first infection with the new coronavirus was reported to the World Health Organization. Twelve months later, global financial markets have been on a roller coaster like no other.
JANUARY JITTERS
The virus wasn’t the first thing that spooked the markets this year. The tone was set when an escalation of an oil market turf war between Saudi Arabia and Russia sent oil prices crashing more than 5 per cent on Jan 8.
Just days later though, China’s stock markets began to fall as a cluster of more than 50 pneumonia cases in Wuhan city sparked a warning from the WHO there could be a new SARS-like virus.
Oil continued to fall as traders were also now worrying about a drop in Chinese demand, but other major markets were not seriously affected until mid-February when it became clear the virus was rapidly spreading out of Asia.
Cue carnage. From Feb. 20 to March 24 as Europe’s big economies locked down, MSCI’s 49-country world share index lost more than a third of its value hemorrhaging a staggering US$18-trillion.
Wall Street’s S&P 500, Dow Jones and Nasdaq slumped 35 per cent, 38 per cent and 30 per cent respectively. London and Frankfurt’s internationally exposed FTSE and DAX markets dropped 35 per cent and 40 per cent, Japan’s Nikkei fell 30 per cent , whereas Chinese stocks saw a more modest 16 per cent drop.
“In retrospect I felt I was one of the villagers in the boy who cried wolf story,” said Ben Inker, head of asset allocation at investment firm GMO.
“We had seen a number of potential pandemics never really develop ... we were assuming that this was going to be contained and when it didn’t we understood why the world was freaking out.”
For reference, the record quarterly drop for Wall Street was 40 per cent in 1932 in the midst of the Great Depression. The fact that the S&P and Dow were at record highs back in mid-February made the crash this time seem more brutal.
MARCH MADNESS
Governments were already trying to shore up their economies, but just like the financial crisis a decade previously it took powerful central bank medicine to steady the markets.
The Federal Reserve’s move to cut U.S. interest rates to zero in mid-March initially had zero impact, but once it opened new swap lines to keep money markets flush with dollars and the ECB and other big central banks arrived with their own measures, the rout eased.
The amount of money and effort thrown at the problem has been unprecedented.
BofA calculates that central banks have spent US$1.3-billion an hour buying up assets since March and made 190 interest rate cuts this year, which works out as four every five trading days.
As well as fueling the monster market rebound, JPMorgan estimates the central bank moves have left nearly US$35-trillion, or 83 per cent, of all richer, developed nations’ government debt with a ‘negative yield’ once inflation is factored in.
It means investors are effectively paying for the privilege of lending to those countries. Germany’s finance ministry for example says it has earned more than 7 billion euros (US$8.51-billion) from issuing new bonds this year.
RECORD PLUNGE
Locking down much of the world economy has not been easy.
By April the International Monetary Fund was forecasting global growth would to fall to -3 per cent, a 6.3 percentage point downgrade from its January estimate. Its latest forecast is for -4.4 per cent for the year. “This makes the Great Lockdown the worst recession since the Great Depression, and far worse than the Global Financial Crisis,” it has said.
Unemployment and global debt levels have also surged and the World Bank warns global extreme poverty is set to rise for the first time in more than 20 years.
It could push an additional 88 million to 115 million people below the breadline this year and as many as 150 million by the end of next year.
APRIL FALLS
Stock markets were beginning to recover in April but the shocks did not stop. Oil went negative for the first time ever , dropping as low as minus US$40 a barrel as oil producers began to fear storage capacity could run out.
It did not last long though. By the end of April it was back up to almost US$20 a barrel and is now back above US$50 - a 220 per cent gain for anyone brave enough to dive in - although it is still down nearly 25 per cent for the year as a whole.
WINNERS AND LOSERS
A breakdown of the best- and worst-performing stocks also tells the story of the pandemic, which has now claimed more than 1.6 million lives.
Malaysian rubber glove maker Supermax and Korean pharmaceutical firm Shin Poong have rocketed roughly 1,000 per cent and 2,000 per cent respectively.
The boom in working from home and video chat has lifted Zoom 490 per cent. Moderna, one of the drug firms delivering a vaccine, is up over 635 per cent, sit-on-your-sofa stocks such as Netflix and Amazon have jumped 64 per cent and 75 per cent respectively while the other big trend of the year – electric cars – has seen Tesla surge 683 per cent and its rival Nio charge up nearly 1,000 per cent.
At the other end, cruise ship company Carnival has sunk 57 per cent, scores of airlines, travel firms and retailers have been battered, while aero engine maker Rolls Royce has been pummeled nearly 50 per cent for the year.
EMERGING HOPE
A seesawing of major currencies has also happened. The safe-haven dollar surged up until the mid-March turnaround but is now down 6.66 per cent for the year and 5 per cent since late September, whereas the euro and yen are up roughly 10 per cent and 5 per cent.
Sweden’s crown is the top 2020 performer with a 13 per cent jump. A 6.6 per cent surge for China’s yuan will be one of its best year’s too though there is still plenty of pain in emerging markets.
Brazil’s real is down 20 per cent. Russia’s rouble – one of last year’s top performers – is down 15 per cent despite a bounce and near bullet-proof balance sheet. Turkey’s lira has climbed off record lows but is still down 22 per cent, while Mexico’s peso and South Africa’s rand are both down around 4.4 per cent although they were down 14 per cent and 20 per cent respectively at the end of September.
NOVEMBER REIGNS
November was also key. First came the U.S. election defeat for Donald Trump which raised hopes some of the global trade tensions would ease. Then days later, the long-awaited news that one of main vaccine hopes had proved more than 90 per cent effective in protecting people from COVID-19.
That double boost saw a record 12.6 per cent monthly leap in the MSCI world stocks index adding approximately US$6.7-trillion – or US$155-million a minute – to the value of world equities.
It is still going. Stocks are now up over 13 per cent for 2020, U.S. and German government bonds and corporate debt have all returned between 10 per cent and 13.5 per cent, gold is up 25 per cent, while the super-sized FAANG tech stocks group are up 100 per cent.
“The 2020 stock rally from lows is now bigger than 1929, 1938, 1974; high prices clashing with positioning (is) verging on greedy bullish,” BofA analysts wrote in note pointedly titled ‘Frankenbull’.
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