Omnis Investment Update – Quarter 1: By a number of measures, the first quarter of 2020 was the worst for equity investors since the aftermath of the Black Monday stock market crash in 1987. As coronavirus spread around the globe, and as the economic implications of efforts to contain its spread became clear, the eleven-year bull market in global equities came to a halt. Stock market indices across Asia, Europe and the US fell in unison, with the UK’s FTSE All Share index falling close to 35% from its peak.
Some – including us (see ‘Shades of 2008’) – have compared recent weeks to the financial crisis of 2008. In early March, these comparisons were justified by signs that the very structure of the global financial system was once more under threat. However, decisive action from central banks, led by the US Federal Reserve, appear to have mitigated this risk, ultimately paving the way for a partial recovery in stock markets towards the end of the quarter.
The current crisis is differentiated from 2008 not just by the reaction it has elicited from policymakers, but also by its cause. Whereas the financial crisis was precipitated by the bursting of a bubble in the market for US real estate, the coronavirus is a truly exogenous shock – one delivered from outside the realm of the global economy or its financial system. As a result, it’s arrival was all but impossible to forecast.
A further difference to 2008 – and to the vast majority of other periods of major market turbulence – is the pace at which recent events have unfolded. We now know that, at the onset of the financial crisis, the US economy entered recession in December 2007. However, this was not confirmed until December 2008, by which time Lehman Brothers had gone bust and the US stock market had fallen some 45% from its peak. Fast forward to 2020 and there can be little doubt that the global economy entered recession in March, an event few were
predicting as recently as February.
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