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Edition 8 - Market Insights

The state of play with investment markets

Here, we take stock of the global response to COVID-19, and its impact on markets and the broader economy.


At the time of writing in early May, the US is headed towards one million diagnosed coronavirus cases and 50,000 deaths, more than a quarter of those reported worldwide. In some of the areas affected earliest, such as New York and Washington State, the daily death toll to have reached an inflection point, while in other heavily populated states – notably Illinois, California and Massachusetts – it continues to increase. Despite these recent improvements, New York is losing more of its citizens to this disease on a daily basis than any other region in the world.

Although new daily reported cases in the country have plateaued for the past three weeks, the US remains one of the countries most affected by the COVID-19 pandemic, yet states are already moving to end lockdowns and re-open their economies. On Monday April 27, Georgia began to ease its restrictions only three weeks after implementing a state-wide 'stay at home' order. Oklahoma and Alaska took similar steps, and a host of other states are considering following suit. Even New York governor Andrew Cuomo has indicated that restrictions in that state may be relaxed from the middle of May.

Messages from the White House have been mixed, and the move to lockdowns largely driven by the states. By all indications the re-opening will be no different.

How have equity markets reacted?

The Dow Jones is down 19% on February’s record highs, but in mid-March had fallen 37% off that mark. The slide lasted a month, from the final week of February and was marked by intense volatility. The single-day fall of 13% on 16 March was the worst since Black Monday in 1987.


The large volume of corporate earnings reported this week will give a clearer picture as to how the downturn is affecting individual companies. Values should be held up by the Federal Reserve’s purchases of corporate bonds under their quantitative easing program.

From a macro perspective, AMP Capital believes the US jobless rate is likely to hit 20%, with 26.5 million Americans having sought unemployment benefits since the middle of March.

AMP Capital’s estimate of a 6% hit to GDP for 2020 tallies with the IMF’s projection of -5.9% growth, with the latter projecting a rebound of 4.7% in 2021, with output for that year still below 2019 levels.



After a disastrous start, continental Europe is finally having some success in turning the pandemic around, with new cases declining slightly by the day in Spain, Germany, France and Italy. The Italians marked 4 May as the day to start winding back their strict lockdown regime, allowing children outside to play once per day.

It may be a far cry from a resumption of normality; but considering the death toll of the past two months, it’s a welcome sign of confidence from policy makers as to the virus’ trajectory.

In both Germany and France, new cases have declined to less than 2,000 per day, less than half of what was recorded at the peak of the outbreaks in those countries. Others are even more advanced; new cases in Austria and Norway having recently fallen to less than 100 per day.

The UK is not quite as far along the infection curve, but new cases appear to have plateaued at around 5,000 per day. However, Prime Minister Boris Johnson, who has himself recently recovered from the virus, has stated that lockdown measures will remain in place for weeks and perhaps months to come, underscoring the severity of an outbreak responsible for more than 20,000 deaths in the country.

How have equity markets reacted?

Major European indices have generally followed the US markets, reaching a nadir in the order of -35-39% of their peak in mid-March before recovering to -23-27% at the time of writing.


The ECB estimates that the pandemic will slash between 5% and 15% of EU GDP over the rest of the year. The Bank of England is even more pessimistic, with one of their leading policymakers recently opining that the economic shock could be the worst in several hundred years, although predicting a near-complete recovery if the virus was eliminated.

New York is losing more of its citizens to this disease on a daily basis than any other region in the world."


The story in Asia over the past months has been the relative success of efforts to contain the second wave of the virus. To this end, China has fared reasonably well, with new cases in that country recently falling below 20 per day, the lowest since the outbreak was first recorded, with most of these new cases coming from returned travellers.

Despite some early success, Japan and Singapore are both dealing with the resurgence of the virus, in the latter case due to an explosion in cases amongst the Lion City’s 200,000-odd strong migrant worker community.

A number of others who enjoyed early success in tackling the epidemic have been able to sustain this performance, including South Korea, where reports of new cases have fallen below 10 per day.

The major question mark surrounds India, whose government on 24 March implemented the world’s largest lockdown program. Originally intended to last for 40 days, the restrictions have since been extended. The large proportion of Indians who rely on a daily wage make an indefinite lockdown infeasible, and the country’s leaders will be hoping for a rapid improvement in the country’s rates of infection before they are forced to relax these restrictions.

How have equity markets reacted?

In keeping with the virus’ apparent origins in China, and earlier spread of the outbreak in that country, the major Chinese indices recorded falls from late-January, down 7-9% on the first day of trading after the Lunar New Year holiday on 3 February. By the first week of March they had regained most of these losses, but followed world markets down on the back of the global shutdowns. The SSE is currently trading at around 10% below its January highs.

Other large Asian markets followed a more global pattern, with the major Japanese, Korean and Singaporean indices all falling by 30-36% from late February to mid-March before recovering to a level 15-21% below their highs of early 2020.

The Hang Seng followed a similar pattern, although proportionally, losses were substantially lower, perhaps due to the index already trading at low multiples before the crisis.


The IMF is still predicting Chinese GDP to grow through 2020, albeit at a much-reduced rate of 1.2%, down from 6% in their January forecast. Official figures from the National Bureau of Statistics show that the economy contracted 6.8% over the March quarter, the first such decline since 1992.

Japan’s economy was already sputtering prior to the crisis, having shrunk at an annualised rate of 6.3% over the December quarter, its worst result in six years. The postponement of the Tokyo Olympics is likely to inflict further pain.

As a whole, the IMF is predicting that Asia will not record any economic growth for 2020, the worst such result in 60 years1.


Australia and New Zealand

Australia and New Zealand were early movers at various stages of travel restrictions, with Australia one of the first to implement a ban on international arrivals on China, on 1 February, and New Zealand closing its borders completely on 16 March. Combined with internal restrictions on movement, the measures have been a resounding success. Australia’s daily report of new cases is veering towards the single digits, despite one of the most comprehensive testing regimes in the world, and New Zealand announced on 27 April that they had eliminated community transmission of the virus.

In the last week of April, New Zealand moved to re-open some non-essential businesses, sending almost half a million New Zealanders back to work. A number of Australian states are also moving to ease their own restrictions, and there is discussion around re-opening the border between the two countries.

How have equity markets reacted?

In a similar fashion to other Asian markets, the Australian and New Zealand stock exchanges slid significantly, in the order of 30% or more, through late February to mid-March, before recovering some of their losses.


AMP Capital believes that GDP for 2020 will fall in Australia by 6% and in New Zealand by 7.2%, before rebounding in 2021. This aligns with the Reserve Bank’s projections for Australia, with RBA Governor Phillip Lowe describing it as “the biggest contraction in national output since the 1930s.” It’s expected that 800,000 Australians have lost their jobs in the pandemic2, with the nation’s unemployment rate tipped to hit 10%.

Important Notes

While every care has been taken in the preparation of these articles, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) makes no representation or warranty as to the accuracy or completeness of any statement in them including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. Performance goals are merely goals. There is no guarantee that the strategy will achieve that level of performance. The information in this document contains statements that are the author’s beliefs and/or opinions. Any beliefs and/or opinions shared are as at the date shown and are subject to change without notice. These articles have been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. They should not be construed as investment advice or investment recommendations. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.

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