Second wave of Covid-19: financial markets fall

The second wave of Covid is contaminating the financial markets and all the stock indexes are nosy.

Paris, Frankfurt, London, Milan, New York… All stock markets are declining under the effect of the worsening pandemic and the measures taken everywhere to try to contain it.

Catastrophic measures for tourism, leisure, transport, sectors which are causing prices to fall.

The Accor hotel group, for example, plunged more than 5% this Thursday in Paris.

Added to the Covid crisis is the uncertainty linked to the American political situation.

Democrats and Republicans still can't come to Congress on a stimulus package when the economy needs it.

Last week alone, 900,000 more Americans registered for unemployment insurance.

Figures that cast doubt on the recovery.

Doubts about the recovery in the United States which will persist at least until the presidential election of November 3, or even more if it is contested.

There are also doubts about the recovery in Europe, firstly due to the curfew or semi-containment measures as in London from this weekend.

And then because of the Brexit negotiations which could end without an agreement.

In short, that's a lot of reasons not to take too many risks on the stock market.

Now, if we take a step back from the current ups and downs, what do we see as underlying trends?

That the stock market is organized around three tectonic plates.

That is to say ?

You have Asia and America growing: + 9% in Shanghai since the start of the year and + 8% in the United States.

While Europe is declining: -12% on average for all European markets.

What is behind it?

Two things.

First, a specific dynamic in Asia, the economy has really picked up, we see it for example through the sales of luxury products which are doing very well.

China will be the only large economy with positive growth in 2020. Then, the United States which, in the Western universe, aspire to savings, especially European.

Why ?

Because in the long run, the returns are higher.

In the long term, US equities return on average 6.4% compared to 4.2% in Europe.

One example is clear: the largest sovereign wealth fund in the world, the Norwegian state fund, at the head of nearly 1,000 billion dollars, has just decided to switch part of its portfolio from Europe to the United States .

Basically, everything is happening as if the world was organizing itself around two major stock exchange centers, a Chinese pole and an American pole.

This bipolar world is also that of finance.