Industry Updates

How coronavirus impacted markets in Q1

George Geddes


The first quarter of 2020 will be remembered for the rapid spread of coronavirus wreaking havoc on global stock markets which suffered some of the biggest losses since the Global Financial Crisis (GFC) in 2008.

On New Year's Eve last year, China alerted the World Health Organisation (WHO) that it was experiencing several cases of “unusual pneumonia”. Seven days later, officials ruled out that it was a recurrence of the SARS virus that also originated in China and killed 770 people in 2002-2003.

By this point, the rest of the world was unaware of what was to come and markets remained reasonably calm. In January, the S&P 500 and FTSE 100 indices were down for the month but by only 1% and 4.2%, respectively, which would turn out to be just the tip of the iceberg.

Additionally, the iShares Core MSCI World UCITS ETF (IWDA), which is comprised of the world's largest stocks, saw a negligible change to its net asset value (NAV) of less than one basis point by the end of the month.

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By the end of January, China confirmed cases reached 9,800, with the UK, Spain and Sweden all confirming their first cases. WHO declared it was a global emergency and markets were beginning to react to the potential impact this would be having on business around the world as flights were beginning to get grounded and factories in Eastern Asia were temporarily closing.

The Shanghai Stock Exchange closed for the Lunar New Year on 23 January which ended up getting extended as a result of the virus. When markets opened again on 3 February after being closed for 12 days, the SSE Composite index, which is comprised of the biggest Chinese stocks listed on the exchange, fell 7.7%. However, the index would end up having a positive month, climbing 4.9% in February.

Countries were beginning to limit tourists from entering in mid-February while China seemed to past its peak of the crisis as its daily infection figures started to drop below 2,000.

The S&P 500 and FTSE 100 suffered its second consecutive month of losses having slid a further 8.4% and 9.7%, respectively. Similarly, IWDA also fell a further 9.5%.

While countries in Eastern Asia, such as China and South Korea, were extensively testing for coronavirus and daily infection figures were falling, Europe and the US were only starting to feel the impact.

On 6 March, the price of oil crashed over 30% following after Russia and OPEC failed to agree to curb production as a result of falling demand.

When markets opened on 9 March in the US after the news, the New York Stock Exchange had to trigger a circuit breaker, pausing trading on the exchange for 15 minutes as a result of the S&P 500 falling more than 7% in a day. After not being enforced since the GFC 12 years prior, the circuit breakers were triggered for a second time later that week following a travel ban enforced by President Donald Trump.

Fixed income ETFs would suffer significantly in March despite central banks and governing bodies attempting to keep business and the economy afloat.

Some 80% of bond ETF discounts blew out to record highs amid the turbulence however fears were eased as central banks around the world, led by the Federal Reserve, stepped in to support global markets at the end of last month.

The beginning of March saw northern Italy being put under strict quarantine rules which affected 16 million people. By the end of March, Italy would be the most heavily impacted country in Europe having over 100,000 cases and 12,400 deaths, according to statistics from Worldometer.

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On 20 March, the global death toll as a result of COVID-19 surpassed 10,000, the same day the UK enforced stricter quarantine rules including shutting all non-essential stores and limiting the community to only leave the house for food, daily exercise or medicine. A week later, the country’s Prime Minister Boris Johnson announced he tested positive for COVID-19.

By the end of the month, China would fall to be only the fourth most infected country in the world behind Spain, Italy and the US. With the greatest number of cases, the US had more than double than that of China with nearly 190,000 cases and over 4,000 deaths.

March was the worst month for the S&P 500 as it fell 16.4%, bringing its year-to-date performance to -20.7%. The FTSE 100 dropped 13.8% in the same month which took its YTD performance to -25.4% as well as IWDA falling 13.3% last month.

How long the market turmoil continues remains to be seen. In a worst-case scenario forecasted by Invesco, the S&P 500 could fall to 1,400 points over the next 12 months, meaning a decline of 54.7% from the beginning of March.

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