Synchronous decline: why the threat of the second wave of coronavirus caused a fall in the stock markets

On Monday, June 15, trading on the global stock market is accompanied by a drop in stock quotes. As a result of the Asian session, the Shanghai SSE Composite index fell by 1.02% (to 2890 points), the Japanese Nikkei - by 3.47% (to 21 531 points), and the South Korean KOSPI - by 4.76% (to 2031 points) .

Securities are getting cheaper on European markets. During the auction, the German DAX index and the French CAC 40 fell by 3% - to 11 591 and 4691 points, respectively, and the British FTSE 100 - by 2.5%, to 5949 points. However, then they showed growth, having won back part of the losses. The Russian stock market also showed similar dynamics. So, the Mosbirzhi index decreased by 2.5% - to 2670 points, and the RTS index - by 3.5%, to 1196 points. 

Bidding in the US also opened in the red. At the beginning of the session, the Dow Jones industrial index fell 2.9% (to 24 843 points), the corporate S&P 500 - 2.5% (up to 2964 points), and the high-tech NASDAQ - 1.8% (up to 9489 points). 

The global depreciation of securities was accompanied by a fall in oil prices. During Monday's trading, the price of Brent reference grade crude fell by 3.8% to $ 37.2 per barrel, while American WTI grades fell by more than 5% to $ 34.36 per barrel.

Global investors reacted negatively to reports of a new outbreak of coronavirus in China and an increase in the incidence in the United States. According to RT, EXANTE managing partner Alexei Kiriyenko, market players fear the start of the second wave of the COVID-19 pandemic.

“The trigger for the markets was the news that there has been a jump in the number of cases in Beijing. The day before, 57 new cases were revealed in the country - a maximum since mid-April. In absolute numbers, this, of course, is not much, but it serves as clear evidence that the virus has not gone away. At the same time, the incidence of coronavirus is growing in the United States in newly opened states after restrictions. In particular, Florida recorded the largest jump in incidence since May 1, ”Kiriyenko noted.

According to Johns Hopkins University, at present, the total number of coronavirus infected COVID-19 in the world exceeds 7.9 million, of which more than 434 thousand have died. Since the beginning of 2020, the spread of the disease and the quarantine measures introduced by states have provoked a massive reduction in trade and passenger traffic, the closure of enterprises and increased unemployment.

According to the International Monetary Fund (IMF), in 2020, the global economic loss from the crisis could exceed $ 9 trillion, and global GDP risks falling immediately by 3%. At the same time, experts of the Organization for Economic Cooperation and Development (OECD) adhere to a more pessimistic forecast. According to experts, according to the results of the current year, the global economy may sag by 6%, and in the case of the second wave of COVID-19 - by 7.6%.

“The second wave of coronavirus can lead to a new lockdown and a halt to the global economy. Many industry representatives who have barely begun to recover may not survive the second wave. In a bad scenario, the negative consequences will affect not only tourism, airlines or the hotel and restaurant business, but will also spread to banks that issue loans to restore the work of enterprises, ”added Alexey Kirienko.

Debt burden

According to analysts, the actions of world central banks should partly restrain the fall of the global economy. So, for example, earlier the US Federal Reserve System (FRS) and the European Central Bank (ECB) launched a quantitative easing program.

As Kiriyenko explained, money supply growth in the economy can compensate for losses from the reduction in business and consumer incomes. At the same time, a policy of pumping money can violate the stability of the financial system, said analyst at Finam Group Alexei Korenev. According to him, states with a high debt burden are most at risk.

“Even before the pandemic, developed countries were actively borrowing, which allowed them to spend money without any hesitation on developing enterprises and stabilizing the financial system. However, with the exacerbation of the pandemic, the world authorities began to flood their economies with money that was raised through the issuance of government bonds, which only increased the debt burden, ”Korenev explained.

Note that at the end of 2019, the highest levels of public debt were recorded in Japan (229.8% of GDP), the United States (101.9%), the UK and the EU countries (101.8%). This is evidenced by the data of the American Institute of International Finance (IIF).

“For all these countries, the continuation of the policy of supporting the economy at the expense of borrowed money is fraught with the formation of a bubble in the stock market, which could burst at any time. Then the financial crisis will add to the general economic tension. Foreign investors will begin to leave these markets, and the authorities will be forced to borrow money from local players or from world credit organizations at a high percentage. As a result, the initial goal of the injections, which consisted in the desire to accelerate the economy and correct the budget, can cause a deepening crisis, ”concluded Korenev.