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Global Markets and the Pandemic Economy

Remember, the stock market is not the economy and liquidity injections can play tricks.

18 Sep 2020

Please read carefully the disclaimer, which appears at the end of this document.

Remember, the stock market is not the economy and liquidity injections can play tricks.

The pandemic recession

There have been fourteen global recessions since 1870, but this is the first time a pandemic has been the sole trigger. Unsurprisingly, financial crises are the most common cause of these economic declines; whereas the dire fallouts of wars, fluctuations in oil prices and shifts in monetary and fiscal policies are answerable for the rest. Notably during the period, the COVID-19 pandemic is the most extensive with more than 90 per cent of emerging markets and developed economies expected to experience contractions in per capita incomes in 2020; surpassing the Great Depression (1929-32), which was negatively affected by an equivalent 85 per cent.1,2

COVID-19 early response timeline

The first case of the coronavirus was detected on 17 November 2019 in the Hubei province in China. It is still unknown if the individual is “patient zero”; which would enable doctors and scientists to trace the origin of the virus.3 The global community was alerted in the evening on 30 December 2019, when an “urgent notice on the treatment of pneumonia of unknown cause” was issued, which was widely distributed on the internet by the red-headed document of the Medical Administration of Wuhan Municipal Health Committee. These notifications were then picked up the next day by the World Health Organization’s (WHO) Country Office in the People’s Republic of China, who then notified the International Health Regulations (IHR), a focal point in the WHO Western Pacific Regional Office and a translation was requested. In parallel, the WHO’s Epidemic Intelligence from Open Sources (EIOS) had also spotted the media report posted by The Program for Monitoring Emerging Diseases (ProMED) and sought further information.4

In certain quarters, there has been accusations of delays by China in releasing information during these early stages (in compliance with Article 44 of the IHR (2005)). This has been refuted and the National Health Commission of the People’s Republic of China (NHC) issued in April a daily chronological timeline from late December 2019 to 31 March 2020 to demonstrate the timeliness and openness of information flow by China from the onset of the outbreak.5

To speculate about agency-governmental dialogue during January would be unfounded, however, in terms of the global markets and economies it would be appropriate to look to the publicised activities and announcements of the WHO, given the agency’s prominent role in global health, to anchor the ensuing socio-economic landscape.6,7 Table 1 identifies the noteworthy WHO incidents during the early stages of these assessments and the mounting realisation that the virus may pose significant health risks worldwide.8

Table 1: World Health Organization Timeline

DateStatements / SpeechesKey Outcome
23 January 2020Statement on the first meeting of the International Health Regulations (2005) Emergency Committee regarding the outbreak of novel coronavirus (2019-nCoV)9On 22 January, the members of the Emergency Committee expressed divergent views on whether this event constitutes a Public Health Emergency of International Concern (PHEIC) or not. Several members considered that it is still too early to declare a PHEIC, given its restrictive and binary nature. The Committee stands ready to be reconvened in approximately ten days’ time, or earlier should the Director-General deem it necessary.
30 January 2020Statement on the second meeting of the International Health Regulations (2005) Emergency Committee regarding the outbreak of novel coronavirus (2019-nCoV)10The Committee agreed that the outbreak now meets the criteria for a PHEIC and proposed the advice to be issued as Temporary Recommendations. The Committee does not recommend any travel or trade restriction based on the current information available. The Emergency Committee will be reconvened within three months or earlier, at the discretion of the Director-General.
11 February 2020WHO Director-General’s remarks at the media briefing on 2019-nCoV on 11 February 202011We now have a name for the disease: COVID-19. Under agreed guidelines between WHO, the World Organization for Animal Health and the Food and Agriculture Organization of the United Nations, we had to find a name that did not refer to a geographical location, an animal, an individual or group of people, and which is also pronounceable and related to the disease.
11 March 2020WHO Director-General’s opening remarks at the media briefing on COVID-19 – 11 March 202012WHO has been assessing this outbreak around the clock and we are deeply concerned both by the alarming levels of spread and severity, and by the alarming levels of inaction. We have therefore made the assessment that COVID-19 can be characterized as a pandemic.

Source: “Statement on the first meeting of the International Health Regulations (2005) Emergency Committee regarding the outbreak of novel coronavirus (2019-nCoV)”; “Statement on the second meeting of the International Health Regulations (2005) Emergency Committee regarding the outbreak of novel coronavirus (2019-nCoV)”; “WHO Director-General’s remarks at the media briefing on 2019-nCoV on 11 February 2020” and “WHO Director-General’s opening remarks at the media briefing on COVID-19 – 11 March 2020” (2020). World Health Organization

Global markets swing both ways

The markets seemingly reacted as expected to the perceived ‘genuine’ newsfeeds on the virus, from sources such as the WHO, but as explained by Robert J. Shiller, an influential American economist; news takes time to evaluate and therefore stock markets never respond ‘suddenly and completely’. Most markets experienced rapid declines and extreme volatility with some cuts deeper than during the Global Financial Crisis (GFC), however, three separate phases can be identified post the PHEIC determination, as shown in Table 2.

Accepting of the actions and reactions of the WHO, as a fair barometer of the mood and understanding of the unwinding situation; the lag in the markets represents a melting pot of: the filtering of information, the evaluation of potential repercussions, evolving data releases (both pandemic and socio-economic) and underlying mounting knowledge.13,14

Table 2: Stock Market Reaction to the Virus and the Aftershock

Stock MarketA - BB - CC - DC - EA – D/E
FTSE All-Share Index (FTSE)1.3%-34.4%31.6%--12.6%
S&P 5003.1%-33.9%-60.0%9.1%

A = 30 January 2020; B = 19 February 2020; C = 23 March 2020; D = 5 June 2020; and E = 2 September 2020.

Source: Data from Google Finance (

In the first phase (A to B) the markets continue to rise and ignore the virus, even despite the increasing number of recorded cases and deaths, and the unequivocal spread of transmission beyond the epicentre of China with a further eighteen countries recording cases.15 During the second phase (B to C) markets plummet across the globe, for example on 9 March the S&P 500 fell 7 per cent in four minutes triggering a circuit breaker which halted trading, whilst the STOXX Europe 600 fell by 20 per cent by the end of trading. On 12 March, the Nikkei 225 of the Tokyo Stock Exchange fell more than 20 per cent below its 52-week high, whilst the S&P 500 activated its second trading curb of the week.16 The third phase is one of recovery (C to the high point (D/E)) and the markets start to claw back the losses from the second phase, some even surpassing pre-crisis highs such as the S&P 500.

Economic diagnosis

The third phase is a dichotomy of the global economy. According to the World Bank, current projections suggest a 6.2 per cent decline in global per capita Gross Domestic Product (GDP), making it the deepest global recession since the end of World War II (1945) and more than twice as deep as the recession associated with the GFC.17

The facts remain stark. The US economy, as measured by real GDP, contracted at a record-shattering 32.9 per cent pace during the second quarter with roughly one in ten workers unable to find a job and approximately one in five Americans at risk of eviction by the end of September.18 Whilst in the UK, the Bank of England forecast unemployment would soar to 2.5 million by Christmas (Office for National Statistics estimated 1.34 million people were unemployed in the quarter ending June 2020).19 Across Europe the devastation continues and the European Commission’s interim summer forecast in real GDP growth shows a contraction of 8.7 per cent and 8.3 per cent for the Euro area and European Union (EU) respectively, a staggering further drop of between 12 to 13 per cent from the interim spring forecast issued only three months prior.20

So why the phase three rally?

Governments and central banks appeared to want to act quickly, lessons learnt perhaps from the GFC and injected wholesale liquidity through an alphabet soup of programmes to stem the sell-off. The impact was swift and decisive, as shown by the third phase; investors buoyed by the state interventions and the superficial immunity of downside risk often associated with bailout mentalities.

Countries across the world engaged in unprecedented monetary and fiscal stimulus and liquidity operations and funding – far too many to list! A united G20 said on 26 March it would inject more than US$5 trillion into the global economy to limit job and income losses and “do whatever it takes” to tackle the pandemic.21

To provide some sense of scale, two of the largest interventions are worth noting. On 19 March, the European Central Bank announced a €750 billion (US$820 billion) bond-buying programme, named the Pandemic Emergency Purchase Programme, to mitigate market turmoil.22 The Federal Reserve (Fed) took action on 23 March and started to re-open the various credit facilitates used during the GFC and by the time President Donald Trump signed the US$2.2 trillion emergency Coronavirus Aid, Relief, and Economic Securities (CARES) Act on 27 March, both municipal bond yields and corporate bond spreads had rallied sharply.23


The fourth phase will be interesting and greatly anticipated. Nothing in financial history compares to the astronomical sums of liquidity being injected across the globe, triggering the mother of all liquidity-induced equity market rallies.24 The markets and their economies are currently travelling in two different stratospheres with little grounding them (let alone to each other).

The global markets will need to figure out how to stand on its own swollen and inflated legs in the worst economy in a lifetime, with poor corporate earnings reports lurking, collapsing dividends and ludicrously inflated stock valuations.25 Let’s not forget, Inc’s company debt was considered junk as recently as 2009. Now, the company has just comfortably filled a US$10 billion bond offering enabled by these timely stimulus packages and incredibly, more than three times oversubscribed.26 To add further perspective, Apple Inc.’s stock slid 8 per cent on 4 September, which roughly translated into a US$180 billion loss for the iPhone maker. Could this be an early sign of the markets pulling back given other tech heavyweights including Microsoft Inc. and all the “FAANGs” (Facebook, Amazon, Apple, Netflix and Alphabet (Google is a subsidiary)) showing a similar downward trend? The concern is, these prime stocks are still underwater from the early September tipping point.27

Even before the crisis there was a growing uneasiness of the level of corporate debt, but as companies around the world try to shore up their finances against COVID-19 it is estimated as much as US$1 trillion of new debt will be loaded onto corporate balance sheets during 2020.28 The fear is when the punch bowl of fiscal policy is taken away and the reality of the second phase comes home to roost; the biggest fly thinkable will be catapulted into the alphabet soup of programmes. The oh-so tasty and inviting dish of the day, now leaves a lingering sour taste. Be under no illusion, economies are still struggling from the tap of trade being turned off so abruptly six months or so ago and the ‘new norm’ of corporate social responsibility, social distancing, lockdown measures and disrupted value chains are still far from overcome.

Clearly, a strategy of riding an artificial wave of rallying markets with no substance is naïve, even reckless, and so investors must also seek assets which show no or low correlation to capital markets with robust and quantifiable valuations. As night follows day, the fourth phase will arrive and is poised to be the most challenging socio-economic minefield to transverse in modern times. Investor portfolios must be primed and prepared for stability and sustainability with a high degree of capital preservation to withstand the effects of future market corrections, continued economic turbulence and the threat of a second wave of COVID-19.


1“Global Economic Prospects” (2020). ( World Bank Group. Retrieved 2 September 2020.
2Sengupta, R (2020). “COVID-19: The world is staring at a recession – the first to be driven by a pandemic”. ( Down To Earth. Retrieved 3 September 2020.
3Bryner, J (2020). “1st known case of coronavirus traced back to November in China”. ( Live Science. Retrieved 4 September 2020.
4“PRO/AH/EDR> Undiagnosed pneumonia – China (HU): RFI. Archive Number 20191230.6864153” (2019). ( The Program for Monitoring Emerging Diseases (ProMED), a program of the International Society for Infectious Diseases (ISID). Retrieved 4 September 2020.
5Xinhua News Agency (updated 2020). “Timeline of China releasing information on COVID-19 and advancing international cooperation”. ( National Health Commission of the People’s Republic of China. Retrieved 4 September 2020.
6“World Health Organization” (updated 2020). ( Wikipedia. Retrieved 5 September 2020.
7Guterres, A (2020). “The recovery from the COVID-19 crisis must lead to a different economy”. ( United Nations. Retrieved 5 September 2020.
8“Timeline: WHO’s COVID-19 response” (updated 2020). ( World Health Organization. Retrieved 4 September 2020.
9“Statement on the first meeting of the International Health Regulations (2005) Emergency Committee regarding the outbreak of novel coronavirus (2019-nCoV)” (2020). ( World Health Organization. Retrieved 4 September 2020.
10“Statement on the second meeting of the International Health Regulations (2005) Emergency Committee regarding the outbreak of novel coronavirus (2019-nCoV)” (2020). ( World Health Organization. Retrieved 4 September 2020.
11“WHO Director-General’s remarks at the media briefing on 2019-nCoV on 11 February 2020” (2020). ( World Health Organization. Retrieved 4 September 2020.
12“WHO Director-General’s opening remarks at the media briefing on COVID-19 – 11 March 2020”. (2020). ( World Health Organization. Retrieved 4 September 2020.
13Shiller, R. J for Project Syndicate (2020). “Understanding the pandemic stock market”. ( ING Bank N.V. Retrieved 2 September 2020.
14Capelle-Blancard, G and Desroziers, A (2020). “The stock market and the economy: Insights from the COVID-19 crisis”. ( VoxEU. Retrieved 2 September 2020.
“Statement on the second meeting of the International Health Regulations (2005) Emergency Committee regarding the outbreak of novel coronavirus (2019-nCoV)” (2020). World Health Organization.
16“Financial market impact of the COVID-19 pandemic” (updated 2020). ( Wikipedia. Retrieved 2 September 2020.
17“Global Economic Prospects” (2020). World Bank Group.
18Thorbecke, C (2020). “Why the stock market is divorced from the pain of a pandemic economy”. ( ABC News. Retrieved 2 September 2020.
19Collinson, P (2020). “Tale of two Cities: FTSE 100 rises despite economic collapse”. ( The Guardian. Retrieved 3 September 2020.
20“European Economic Forecast. Summer 2020 (Interim)”. Institutional Paper 132 (July 2020). ( European Commission. Retrieved 7 September 2020.
21“Factbox: Global economic policy response to coronavirus crisis” (2020). ( Reuters. Retrieved 7 September 2020.
22“Financial market impact of the COVID-19 pandemic” (updated 2020). Wikipedia.
23“Bond Market Liquidity is Back – But is it Here to Stay?” (2020). ( SEI Investments Management Corporation (SIMC). Retrieved 7 September 2020.
24Swonk, D; Rosenberg, D; El-Erian M. A; Posen, A; Porter, E and Jackson, T (2020). “Why Are Stocks Soaring in the Middle of a Pandemic?” ( Foreign Policy. Retrieved 2 September 2020.
25Wolf, R (2020). “Fed Ends QE, Total Assets Drop. Liquidity Injection Ends”. ( Wolf Street. Retrieved 4 September 2020.
26Rennison, J; Platt, E and Lee, D (2020). “Amazon secures record low borrowing costs”. ( Financial Times. Retrieved 2 September 2020.
27Jasinski, N (2020). “Apple Lost $180 Billion In Market Value on Thursday. It’s the Biggest Loss For Any Company Ever”. ( Barron’s. Retrieved 8 September 2020.
28Jones, M (2020). “Coronavirus bringing record $1 trillion of new global corporate debt in 2020: report”. ( Reuters. Retrieved 8 September 2020.


Baker, S. R; Bloom, N; Davis, S. J; Kost, K; Sammon, M and Viratyosin, T (2020). “[White Paper] The Unprecedented Stock Market Reaction to COVID-19”. ( Becker Friedman Institute. Retrieved 2 September 2020.
Dutta, N (2020). “There are clear reasons for the stock market’s surge, despite the terrible pandemic news”. ( Business Insider. Retrieved 2 September 2020.
Murphy, D (2020). “The stock market rally is not connected to reality, India stock exchange chief warns”. ( CNBC. Retrieved 3 September 2020.
Santoli, M (2020). “Making sense of a stock market just 16% of its high while a pandemic costs 26 million jobs”. ( CNBC. Retrieved 2 September 2020.

Past performance is not a reliable indicator of future results. The value of an investment and the income from it can fall as well as rise. Investors may not get back the value of their original investment. Any reference to a guarantee or guaranteed return relates to the underlying policies and not to the share price.

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