MARKET UPDATE #2
March 2020
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Biggest Market Swings that we haven’t seen for years.
12 March 2020
The COVID-19 pandemic shaping the markets in 2020
On March 11, the World Health Organisation (WHO) characterized COVID-19 as a pandemic. In much the same way that a pandemic is defined as a new disease which spreads around the globe, in financial markets the term contagion is defined as the spread of an economic crisis from one region, or market, to another.
South African and foreign equities got off to a strong start in January on the back of further global monetary easing, only to subsequently sell off sharply on fears that the Coronavirus could plunge the global economy into recession. Compounded by a crash in the oil price after an OPEC fallout between Saudi Arabia and Russia, markets plunged globally at the double crisis.
This aggressive sell-off in the markets has been compared to that of the 2008 Global Financial Crisis (GFC), where global markets fell by roughly 35% over the course of 9 months. However, when looking at the returns following the worst one-day return during the GFC, the graph below shows that the JSE All Share Index (JSE/ALSI) returned 11.42% over the subsequent 12 months:
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Source: I-net BFA
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While investors grapple with the expected impact of COVID-19 on their investments, many countries have adopted stringent controls, such as restriction of movement, vigorous testing and in certain cases, nationwide quarantines, in order to contain and prevent further spread of the virus. Governments are also responding to the situation with exceptional economic policy measures and proposals, including interest rates cuts and targeted relief for affected industries. These measures look to contain not only economic risk from the spread of the virus, but the virus itself.
Similar to pandemics and during periods of contagion, mass fear and panic selling causes markets to experience sharp declines. This can present attractive buying opportunities for investors as markets eventually recover, which, as experienced after the Global Financial Crisis, resulted in the longest bull run in history.
Clients should not let the recent events lead to any rash or reactive decisions, enabling you, as their Financial Adviser, to ensure that they remain patient and committed to their investment time horizon and financial plan.
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