After touching fresh highs on February 19, global equities and other risky assets sold off sharply over concerns about the spread of the coronavirus1. Reports indicate that COVID-19 is expected to spread further than was initially hoped and warnings issued by the US Center for Disease Control along with an acceleration in cases outside of mainland China triggered a deep market sell off with a 14.8% intra month peak-to-trough loss for the S&P500.
Emerging markets held up relatively well in aggregate. China was the only market that gained for the month amidst a substantial stimulus effort. Brazil and Russia suffered double digit losses over falling oil prices. Developed markets, specifically stocks in UK, Australia and Japan also lost ground. Value stocks pulled back sharply while energy stocks dropped 14.7%.
In anticipation of the economic growth fallout, the OECD revised its 2020 economic growth forecast downward from 2.9% to 2.4%, lower than in any year since the financial crisis. In a scenario of a prolonged and deep coronavirus outbreak, world GDP could fall to as low as 1.5% this year, per the OECD. Additionally, many firms have reduced their earnings guidance for 2020, or have withdrawn it completely.
China, followed by other emerging market central banks, cut benchmark rates and announced fiscal stimulus packages. The Fed has continued to expand its balance sheet and in early March it cut rates by 50 bps.
Geopolitical risks have decreased modestly with the trade issues between the US and China moving into the background. However, unrest in Iran, Venezuela and Libya along with the trade negotiations between the UK and EU remain as geopolitical risks. The US primary election season got underway with Bernie Sanders and Joe Biden emerging as the frontrunners for the Democratic party. In Germany, chancellor Angela Merkel is pressed to seek a new successor after the key candidate to replace Merkel resigned.
In this issue we cover: