Inevitably, the global coronavirus pandemic has had a serious impact on world stock markets, which have suffered their worst quarter since 1987. Let’s take a closer look at the news over the last month.
UK
Anything the Chancellor announced on 11th March was almost immediately superseded by events and – when this is finally over – another Budget seems inevitable. Like other countries, the UK will one day, have to pay for the rescue package and the unprecedented increase in Government borrowing.
The rest of the UK news is, inevitably, dwarfed by the impact of the crisis. Business confidence fell during March, and credit rating agency Fitch dropped the UK from AA to AA- adding the country’s economic output would fall by almost 4% this year.
Some good news: Nissan announced that it was investing £400m in its Sunderland plant to build the new Qashqai – and two days later the Chinese firm Jingye completed the takeover of British Steel, safeguarding 3,000 jobs. Then, on the morning of the Budget, the Bank of England cut base rates from 0.75% to 0.25%.
None of this, of course, could do anything to stop the stock market’s slide in March. The FTSE 100 index of leading shares fell 14% in the month to close at 5,672 and is down by 25% for the year as a whole. The pound fell 3% in the month to end March at $1.2415, down 6% against the dollar for the year to date.
Europe
The impact of Covid-19 on Europe is likely to be severe and long lasting. The blow to Italy’s economy – to take just one country – could be catastrophic, especially with several Italian banks long having been widely seen as vulnerable. If the outbreak is prolonged then the fragile economies of Spain, Greece and Portugal are going to compound the problem.
In keeping with the rest of the world, the German DAX index fell 16% to 9,936 while the French market fell 17% to 4,396. For the year as a whole, the two markets are respectively down by 25% and 26%.
Illustrating how vulnerable some of the smaller markets might be, the Greek stock market fell 22% to 558 in March, and is down by 39% since the start of the year.
US
Total ‘non-farm payroll employment’ in the US rose by 273,000 in February, with the US Bureau of Labor Statistics reporting that the unemployment rate was unchanged at 3.5%. The US Federal Reserve implemented the first emergency cut to interest rates since the collapse of Lehman Brothers in 2008.
A fortnight later, the Fed had to act again – effectively cutting US rates to zero and announcing a stimulus package worth $700bn (£565bn). This was subsequently dwarfed by the near $2tn package which the US administration approved by the end of the month.
When Donald Trump was inaugurated in January 2017, the Dow Jones index stood at 19,732. The Dow slipped below that level at one point in March, falling to 18,917. By the end of the month, it had recovered to 21,917 where it was down 14% for the month and 23% for the year as a whole.
Meanwhile, the economic news continued to worsen, with 3.28m Americans – an unprecedented number – seeking jobless benefits.
Far East
The beginning of March brought confirmation that Chinese manufacturing had fallen to a record low in February, with the Purchasing Managers’ Index down to 35.7 from the 50 it had recorded in January. At one point, exports were down by 17% as the virus had a bigger impact on Chinese manufacturing than the economic crisis of 2008.
The World Bank is now predicting that growth in China this year will be just 2.3% compared to a prediction of 6.1% made last year. This lower growth rate will inevitably impact the smaller Far Eastern economies, with the World Bank now projecting a best case scenario of 2.3% growth for the region this year, and a worst case of just 0.5%. This compares to the 5.8% growth forecast before the Covid-19 outbreak.
China’s Shanghai Composite Index closed March at 2,750 from an opening level of 2,880, meaning that it was down just 5% in the month and 10% for the year as a whole.
The Hong Kong market fell 10% in the month to 23,603 (down by 16% since 1st January). The Japanese stock market fell 11% in March to close at 18,917 while the South Korean index fell 12% to 1,755. Both those markets are down by 20% for the year as a whole.
Emerging Markets
India’s finance minister was under attack after announcing an £18.8bn stimulus package for the economy: critics derided it as ‘not nearly enough.’
The Indian stock market ended the month down 23% (and 29% for the year as a whole) at 29,468. It was not, though, the worst performer in this section, as the Brazilian market fell to 73,020 – down 30% in the month and 37% for the first quarter. In relative terms, the Russian market did ‘well:’ it was down by just 10% in the month and, at 2,509, is down 18% for the year as a whole.
