C-19: A cursory look at the shock to global markets

Updated: May 11

The toll that the world is facing due to the COVID-19 pandemic has been devastating; more than 100,000 people are now dead and thousands more continue to die each day. The US has projected that deaths from the first wave alone will reach the range of 60-200,000 across the country; while hard hit countries Italy, Spain and France, have reached death figures reaching 15,000 respectively as at time of writing. Meanwhile the virus spread has sent shockwaves to the capital market as companies deal with massive uncertainty on continued global demand, output, and trade. In this article we will study some of the broader impacts the pandemic on the capital markets and outline some general takeaways.

#COVID #markets

TL;DR key-takeaways

  • Markets are suffering across the board, with declines of some 20-30% from baseline, due to the COVID-19 spread

  • No region or country is being spared, the declines seem consistent across the board suggesting systemic challenges mainly due to drop in consumer demand, and huge uncertainty in global trade, demand and output

  • There are clear signs of a global recession on the horizon, and the situation is likely to persist for some time, at least until a vaccine or treatment for COVID-19 is discovered


Markets all around the world are in shock at the magnitude of the devastating impact from COVID-19, and the frightful speed at which threats of its spread has disrupted economic activity globally. Countries like Italy, Spain, France, the US and many more continue to battle rising deaths reaching the tens of thousands; meanwhile, at least 50% of countries all around the world have locked down their populations to contain the virus' spread. Businesses big and small, public places, airports and transportation networks are practically shuttered, as countries sit idle waiting for the number infections to abate through the crude measure of social distancing.

In this article we analyse key statistics across some 40 assets represented by listed broad market index ETFs. These assets represent a wide range of asset classes and markets; from equities to bonds, money market instruments and commodities; across US, Europe, China, and emerging markets. The choice to utilise broad market index ETFs for this analysis was due to the ease of obtaining up-to-date data, while at the same time being able to represent a general broad market performance for each asset class and market in question.

A word of warning: this article is not meant as a how to guide to 'manage' the on-going crisis. We do not pretend to know what the next turns of events are for the global economy, and neither will we stake a view on this here. Rather, we simply wanted to share a cursory look at what has transpired since the pandemic started, and weigh up what this could mean for all of us.

We urge the reader to browse the data presented in the section further down below before reading the discussion section, as references may be made to relevant datasets within this text.

Observations and discussion

  1. Across the board, equities around the world have suffered dearly: tickers such as SPY (US market), SPDW (rest of world ex-US), VEA (EU, Canada and APAC), EEM (emerging markets), AAXJ (Asia Pac), FXI (China) all show market declines within the order of 15-20% since the start of the pandemic from just 10 weeks ago (50-70% annualised).

  2. The virus has already wiped out some 2 years of positive returns (nominal basis) for US equities, outlined here by the S&P (SPY ticker). This is already an improvement from its lowest point 3 weeks ago when some 3 years of returns were wiped out. Clearly the market is in a highly volatile state with the US market dropping a third in value within a month; the fastest decline in its history since World War II, and faster than either of the 2000 and 2007 crises (see Economist video).

  3. Meanwhile, Asia Pac and emerging economies (AAXJ, AIA, INDA, EWM) are hovering around the negative 15-20% mark; China's decline (FXI) has met some respite as its economy begins recovery, having now potentially found a path to manage the virus and reopen their economy, at some 10% down vs. its position 10 weeks ago.

  4. US long term treasury bonds (TLT) and commodities like gold (GLD) are the only asset classes here that have gained since the pandemic started, as investors flock to a flight to safety vs. equities. They are not, however, 'safe', gold now appears to be positively correlated to equities and likewise dropped in value at the early phase of the pandemic however seems to have recovered to previous levels over the past 2 weeks. Given the sharp drop in demand for commodities globally however, it is uncertain what the outlook will be; one can also easily argue how gold is not part of the productive economy anyway, and its price rally is a flock to safety for investors scrambling away from equities. Meanwhile a similar rally has taken place in long term treasury bonds due to the same; they are now only weakly negatively correlated to equities, and as US treasury yields hit an all time low with the fed rates now cut to zero there is little room to grow further. This rally will soon have to end.

  5. But this is not a write up about building investment portfolios. It is in equities that we want to focus on, as they represent the 'productive' economies of each country. Clearly, with equity market figures standing where they are there is strong signal of a global recession looming.

  6. It should be noted that consumer spending contributes some 70% of the US GDP, and many country economies are similarly structured (Malaysia records some 60% for the same statistic). With the COVID-19 pandemic, where countries are locked down, that consumption has come to a grinding halt as people are barred from the streets and businesses are shuttered - effectively, the demand side of the economy dissipated overnight. Although there are hopes by some for a V shaped bounce back, our unrefined opinion is that in absence of a vaccine; even if the initial waves of COVID-19 were to be dealt with effectively and swiftly, the residual fear of the virus will still exist at a visceral level for every person, and there may be strong apprehension for most consumers to comfortably roam the streets as they had before the virus came. Restaurants and malls would suffer, so too would travel and transportation, or any other business activity involving interaction with other people! No matter the size and generosity of the stimulus, the economy may indeed never be the same again for some time to come.

  7. It is not clear how the world economy will recover from a crisis of this magnitude in a short time. There is much talk of a hopeful V shaped recovery, however others insist a U shape is more likely, or perhaps even an L shape, drawing the economy through a long and depressive slog to normalcy. Without clarity on a vaccine, or a credible means to deal with it without locking down the country, neither is very credibly represented at this point in time.

  8. Countries are also showing widely varying extents of the virus' impact, with current deaths ranging by country from zero to 20,000, indicating a widely varying level of struggle each country is enduring. Lock-downs do in fact seem to be the only viable tool to taper exponentially growing deaths, and the efficacy of such controls again vary from country to country. We unfortunately live in a time where economies are globally connected, as evidenced by the highly positive correlation of global equity prices, making it hard to see how an isolated recovery in any one country will yield positive results without the entire world overcoming the virus at the same time.

*Note 1: We at Agility are not investment professionals. Our interest in this topic stems primarily from our interest in providing special coverage of the on-going COVID-19 pandemic, for which this piece is a part of a broader series of related articles.

**Note 2: Accompanying notes on the data presented below:

  • Utilises ETF assets to represent range of asset classes

  • All asset prices denominated in US$ and based on their closing trade price on the day

  • Frequency of datasets is every week

  • Returns calculated only on capital gains to simplify computation (no dividends)

  • Rolling correlation utilises smoothing (6-12 period window)

  • Source data Google Finance and Morningstar

(A) Next 3 figures: Study of a range of ETF across multiple asset classes, representing a range of markets for a 5-year period from April 2015 to April 2020 (weekly data)

(i) Annualised 5-year returns and standard deviation for a mixture of ETFs

(ii-a) Cross-correlation for a selection of these assets over the past 5-years:

(ii-b) For comparison: Cross-correlation for a selection of these assets for just 10 weeks starting from early Feb [representing the pandemic crisis period]

(iii) Asset prices indexed to April 2015 for specific assets

(B) Next 3 figures: Returns, standard deviation and cross-correlation for selection of asset classes over last 52 weeks period (pre- and post COVID-19)

i) 52 weeks up to April 2020 (size represents total asset size)

ii) 52 weeks up to February 2020 (pre-COVID)

iii) Cross-correlation of selected assets over last 52 weeks

(C) Next figures: Trajectory of asset prices over last 10 weeks

i) Annualised returns and standard deviation indexed to 9 February 2020 (vs. 10 April)

ii) Indexed asset prices since 9 February 2020 to present day (10 April 2020)


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