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The performance of world markets in the pandemic

Equity-market performance around the world has diverged in response to government stimulus measures and those exposed to the digital revolution.

Equity-market performance around the world has diverged in response to government stimulus measures and those exposed to the digital revolution.

Charles Stanley

in Features


At the end of July, the S&P 500 index of larger US company shares pushed ahead of its starting level this year. Nasdaq powered on, forming more new highs. It has now delivered a 22% increase for the year to date.

Both these indices have drawn their strength from the extraordinary fiscal and monetary stimulus provided by the Federal Reserve and US Congress and thrived on the results of the mighty US digital corporations. The dominant US technology giants have grown their businesses dramatically as a result of the lockdowns and social distancing policies followed in much of the world. These have persuaded or forced people to buy online, talk to friends and family online, and download their entertainment online.

The monetary stimulus was crucial, as even the big tech companies saw their share prices fall away sharply in the early days of the Covid-19 crisis. Market fears then of mass unemployment and mass bankruptcies hit even the winners from the antivirus policies. Nasdaq is now 62% up from its March low, leading global markets higher. Today, US markets enjoy the continuing money expansion and look forward to new fiscal stimulus as both main political parties consider how to boost the chances of their presidential candidate.

Tech winners

The second quarter of 2020 saw big advances in turnover for companies such as Amazon in online retailing, Netflix in downloaded entertainment, Apple with its range of devices in demand for a digital world – and Microsoft providing the software for the homeworking, online education and social media.

Despite large increases in costs as they expanded their workforces to meet extra demand and growing regulation, many of the tech businesses also reported strongly rising profits. Alphabet, depending on adverts for its revenues, was more constrained by the general recession. In China, the local tech giants also made good progress.

European and UK shares are still well below where they started the year, though they too have experienced good recoveries from the March lows. The European Central bank (ECB) and Bank of England did enough to support the Fed to help markets higher and to avoid a banking and credit crunch on the back of the lockdowns. They did not do as much as the US to overwhelm bearish sentiment and take markets to new highs.

Sun rising in Japan

Japan has fared a bit better, with the Nikkei Index almost back up to where it was in January. The Bank of Japan has continued with a very accommodating monetary policy and has also been buying equity Exchange-traded funds (ETFs) as well as bonds to support the equity market. These markets do not have the same exposure to big tech as the US index and are not getting such an extreme monetary stimulus as Wall Street. Their range of companies has proved more vulnerable to the sharp declines in activity and profits in travel, leisure, hospitality and luxury goods. The EU has also pressed on with its ‘green revolution’ which entails writing off large amounts of capital in everything from oil and gas companies through the motor industry to domestic heating.

Chinese mainland shares have rallied well since March and are now 9% up on the year. Monetary policy has been supportive and the government has been encouraging people to behave more normally to fuel economic recovery and to buy shares. The main Shanghai Index does not have the same high weighting in technology that Nasdaq or even the S and P 500 enjoys, limiting the upside. As we feared, the US/China trade dispute has broadened into a new cold war. The continuing rows about civil liberties in western China, governance of Hong Kong, the aggression of China in the South China Sea, technology theft and asymmetric tariffs have brought US allies into the disagreements, with worsening relations for Australia, the UK and the EU with China as a result. The world is heading for a big digital divide, with a US-led system and a Chinese one. There will also be more ethical questions about investment in China given the approach of an increasingly autocratic regime and the growing sensitivity of western investors to ESG issues that go wider than growth in profitability.

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

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