Home / Markets / Mark To Market /  Global equities riding on hope, as fear of virus takes a backseat

Global equity markets continue to recoup the losses triggered by the outbreak of coronavirus pandemic earlier this year. As the alongside chart shows, the MSCI World index, which had fallen 34% from its highs in February to its lows in March, has recovered almost three-fourths of those losses. The index is now down only 9% from its February highs.

The gradual re-opening of some countries is also helping business activities slowly revive. That said, a niggling worry about a second wave of infections remains.

Recovery versus renewed fear
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Recovery versus renewed fear

On Sunday, the World Health Organization reported the largest single-day increase in coronavirus cases, at more than 183,000 new cases in the latest 24 hours. “Uncertainties regarding the further development of the corona crisis are overshadowing the recent encouraging economic signals and investors' hopes for a rapid recovery of the global economy," analyst at European private bank and asset manager LGT Group said in a report on 22 June.

But as UBS Group AG economist Paul Donovan puts it, financial markets may have become nervous about virus clusters – although as far as fear of the virus, citizens seem less perturbed now. “Cases in Germany and Australia have been localized, and so far there seems to be little evidence of widespread fear (either from consumers or from policy makers)," he said in a podcast on 22 June.

The widely tracked fear gauge - the volatility index (VIX) has moderated from its recent peak. However, global fund managers still see a second wave of coronavirus as the top tail risk, showed Bank of America’s latest survey. The Chicago Board Options Exchange VIX surged to 82.69 in March and is currently at around 35. Similarly, the India VIX soared to 83.61 in the same month and is now at 30.

Meanwhile, investors are pinning their hopes on an economic turnaround, sooner rather than later, thanks to continued policy support from global central banks.

Last week was dominated by a slew of policy makers operating in crisis control mode. The Bank of England has expanded its bond purchases and Brazil's central bank lowered its key interest rate to a record low. The US Federal Reserve and the European Central Bank have also adopted aggressive stimulus measures. Back home, the Reserve Bank of India, in a surprise move announced a 40 basis points repo rate cut in May. At 4%, India’s repo rate is the lowest since 2000. One basis point is one hundredth of a percentage point.

It remains to be seen if these measures are enough to bring the derailed world economy back on track, but for now they have kept investors sentiment afloat.

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