David Buik is a financial commentator and a consultant for Aquis ExchangeIn September 2019, disturbing rumours started to permeate out of a c
David Buik is a financial commentator and a consultant for Aquis Exchange
In September 2019, disturbing rumours started to permeate out of a city little-known outside of China, Wuhan.
It was purported that Wuhan was being savaged by an unknown virus, eventually to be known as Covid-19. The world just watched out of interest. Little did we know that this pandemic would decimate the world’s economy.
The level of preparation to deal with this pandemic was derisory. There was no planning, no procuring of PPE equipment and inadequate ‘testing and tracing’ facilities.
Without mincing words, this toxic virus, capable of killing a million people plus was given the freedom of the park – in fact, ‘a gaping open goal’!
It is extraordinary to think that the only world leader who warned against the inevitable appearance of a pandemic was President George W Bush back in 2005. The warning fell on deaf ears.
In 2016, Britain’s Health Secretary Jeremy Hunt was warned that in the event of a pandemic, the NHS would have a shortage of protective equipment and critical care beds. There were no funds available at that time to deal with this threat.
Though the World Health Organisation was extremely tardy in declaring the pandemic on 11th March 2020, global stocks markets were rather more canny and realistic in accepting that there was ‘trouble at mill’.
A massive sell-off, not experienced since the Great Depression of 1929, manifested itself from the middle of February until 23rd March, when most of the world was in some sort of lockdown, with no travel, no aeroplanes, and no meaningful amount of goods being shipped around the world.
How it started: Wuhan in China was the first city to report an unknown virus, eventually to be known as Covid-19
Global stock markets, apart from China’s Shanghai Composite (-14 per cent) shed between 24 per cent and 36 per cent of their value compared to where they opened the year.
The US economy and its stock markets suffered more than most. In that period, the Dow Jones was down 36 per cent, the S&P 500 by 31 per cent and the Nasdaq by 24 per cent. Global equity markets shed a total of circa $10trillion in value.
Shares in US companies from energy, travel, banking, and retail sectors were desecrated at that time.
The following household names felt the wheels of pain across their backs: Chevron -55 per cent, Exxon Mobil -56 per cent, Boeing -70 per cent, Delta -63 per cent, United Airlines -72 per cent, Expedia -56 per cent, Macy’s -70 per cent and Abercrombie and Fitch -53 per cent.
BP shares dropped more than 50% in the first three months of the year amid falling oil prices
The situation was equally grim in the UK and Europe.
The following companies saw their share price larupped in the first quarter of 2020: BP -51 per cent, Shell -56 per cent, IAG -69 per cent, HSBC -25 per cent, Barclays -55 per cent, M&S -56 per cent, JD Wetherspoon -33 per cent and M&B -46 per cent.
There were painful reverses on the continent too: Societe Generale -55 per cent, Airbus -60 per cent, Renault -60 per cent, BMW -50 per cent, VW -55 per cent, SAP -25 per cent, Bayer -35 per cent, Allianz -40 per cent, Deutsche Bank -25 per cent.
UK retail was also severely under the cosh as lockdown took its toll right across the high street. Debenhams and Arcadia have fallen from grace amongst others. In total 124 retail operations have failed, with 20.620 units closing, resulting in close on 150,000 jobs being lost.
The lockdown took its toll right across the high street, with Debenhams one among many retailers to have collapsed this year
The hospitality sector was in even more disarray, shedding thousands of jobs. Oil had fallen to $11 a barrel in May but has subsequently picked up to circa $50.
Investors wanted to believe in tomorrow and a ‘V-shaped’ recovery. However, it was far from clear as to the timing of the pandemic’s disappearance.
The world’s central banks were galvanised into action together with government assistance of eye-watering proportions such as furloughing schemes.
STOCK MARKETS CRASHES AS COVID BROKE:
FTSE 100 -34%
S&P 500 -31%
HANG SENG -24%
NIKKEI 225 -27%
The figures relate to the period between 2 January and 23 March 2020.
Central banks vowed to keep interest rates as close to zero as possible for as long as three years, with the Federal Reserve’s Jerome Powell being the most vociferous, as well as active, in providing gargantuan quantitative easing facilities.
Global government borrowing leapt off the scale, which with the low cost of borrowing, made the amounts borrowed within the bounds of acceptability rather diving into the world of fairytale economics.
The telephone numbers for UK public borrowing requirements, which according to the Office for National Statistics could reach £372billion by March 202, have been well chronicled.
Suffice to say that some way down the line ‘the kissing will have to stop’. Our children and grandchildren will have to pay for this eventually.
Who would have believed that US technology-based companies would have delivered investors out of the ‘house of financial bondage’ in the manner that they have?
With lockdown, working conditions, lifestyles, education, and entertainment changed not only dramatically, but probably irrevocably. Hence technology became the ‘matinee idol’ in driving the global economic recovery process.
US giant Amazon was one of this year’s winners – its shares have risen 75 per cent
The gains made this year by the likes of Amazon (+75 per cent), Alphabet (+29 per cent), Apple (+82 per cent), Microsoft (+40 per cent), Netflix (+62 per cent), Zoom (+411 per cent), Facebook (+34 per cent) and Tesla (+673 per cent) were breath-taking in their magnitude.
In 2020 the Nasdaq Composite has gained a staggering 42 per cent in value.
The US has also enjoyed 407 Initial public offerings this year, valued at $145billion, including riveting debuts from Airbnb, Door-Dash, Palantir and Snowflake. The Hut Group was the UK’s largest IPO valued at £5.7billion.
The Hut Group was the UK’s largest IPO valued at £5.7billion
The ongoing recovery process is entirely dependent on how quickly a vaccination can be rolled out to the world at large. The rejuvenation of travel and the movement of goods is of paramount importance. The UK could be well placed to ‘grasp the nettle.’
Now that a Brexit trade deal appears to have been agreed, many companies in the FTSE 250 should provide splendid investment opportunities, despite the disappointing performance of FTSE 100, which has not been an accurate barometer of the UK’s economy for some years.
Some 60 per cent of its earnings are dollar and euro based.
UK tech raised a record £11billion in venture capital this year, despite Covid-19 – more than France and Germany combined. Opportunity should knock before too long!