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The Impact of Covid-19 Pandemic on Global Financial Markets: a Qualitative Analysis

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The Impact of Covid-19 Pandemic on Global Financial Markets: a Qualitative Analysis 2994 Brazilian Journals of Business The impact of covid-19 pandemic on global financial markets: a qualitative analysis El impacto de la pandemia del covid-19 en los mercados financieros globales: un análisis cualitativo DOI: 10.34140/bjbv2n3-075 Recebimento dos originais: 20/05//2020 Aceitação para publicação: 20/06/2020 Richard A. Ajayi University of Central Florida 12744 Pegasus Drive, Orlando, FL, USA E-mail: [email protected] Fuzuli Aliyev Baku Engineering University Baku, AZ0101 Azerbaijan E-mail: [email protected] Teymur Sarkhanov Azerbaijan State University of Economics (UNEC) Baku, Istiqlaliyyat str.6, AZ1001 Azerbaijan Sakarya University, Turkey teymur E-mail: [email protected] RESUMEN Justo después del acuerdo comercial de fase uno acordado entre los EE. UU. Y China, el mundo se ve envuelto en una gran pandemia de infección por coronavirus. El coronavirus ha afectado a casi todos los sectores de la vida, incluidos todos los lados de la economía y los mercados financieros. Ha provocado fuertes caídas en la demanda y ha ralentizado considerablemente las actividades económicas. El brote del virus se ha convertido en una de las mayores amenazas para la economía mundial y los mercados financieros. Las empresas en la era de la globalización son muy interdependientes a través de la integración económica y las cadenas de suministro globales. Debido a los bloqueos concomitantes de la pandemia, las empresas globales experimentan interrupciones en las producciones, suministros, transportes y ventas. Estos resultan en fuertes disminuciones de los ingresos y en quiebras de varias empresas. Los precios de las acciones reaccionan rápidamente a estos choques. Pero no todas las acciones de la empresa reaccionan de la misma manera. Por lo tanto, separamos los impactos en dos grupos. Analizamos el impacto del coronavirus en los mercados financieros desarrollados y emergentes. Los mercados financieros desarrollados representados por los mercados de EE. UU. Y Europa son capaces de gestionar de manera justa las turbulencias iniciales en los mercados de acciones y bonos. Los bancos centrales de estas economías pueden responder de inmediato recortando las tasas de interés, aunque estas acciones no estabilizaron el mercado de manera adecuada. Los mercados emergentes representados por China, India, Brasil, México, Rusia, Indonesia y Turquía sufren en mayor medida el virus en forma de trastornos económicos, devaluaciones monetarias y altos aumentos del desempleo. Este documento destaca los impactos del virus en los dos grupos de mercados financieros de forma cualitativa. Los hallazgos sugieren que los responsables de la formulación de políticas, las autoridades reguladoras y los inversores deben tomar medidas para mantener los mercados financieros funcionando de manera eficiente en estos tiempos Braz. J. of Bus., Curitiba, v. 2, n. 3, p. 2994-3001, jul. /set. 2020. ISSN 2596-1934 2995 Brazilian Journals of Business difíciles. Esta es la versión revisada del documento presentado en la Conferencia 55th International Scientific Conference on Economic and Social Development en Bakú, Azerbaiyán. Palabras-clave: Coronavirus, mercados financieros, mercados emergentes, mercados desarrollados ABSTRACT Just after the agreed Phase One trade deal between the US and China, the world becomes gripped ina major pandemic of coronavirus infection. The coronavirus has affected almost all sectors of life, including all sides of the economy and financial markets. It has caused sharp decreases in demand and greatly slowed down economic activities. The virus outbreak has become one of the biggest threats to the global economy and financial markets. Companies in the age of globalizationare very interdependent through economic integration and global supplychains. Due to attendant lockdowns of the pandemic, global companies experience disruptions in productions, supplies, transportations and sales. These result in sharp decreases in incomes as well as bankruptcies of several firms. Stock prices react to these shocks rapidly. But not all company stocks react the same way. Thus, we separate the impacts into two groups. We analyse the impact of coronavirus on developed and emerging financial markets. Developed financial markets represented by the US, and European markets are able to fairly manage the initial turbulences in stock and bond markets. Central banks of these economies are able to immediately respond by cutting interest rates, thoughthese actions did not stabilize the market adequately. Emerging markets represented by China, India, Brazil, Mexico, Russia, Indonesia and Turkey suffer greater from the virus in the forms of economic disruptions, currency devaluations and high increases in unemployment. This paper highlights the impacts of the virus on the two groups of financial markets in a qualitative way. The findingssuggest steps to be taken bypolicy makers, regulatory authorities and investors to keep financial markets operating efficiently in these troubled times. Keywords: Coronavirus, financial markets, emerging markets, developed markets 1 INTRODUCCIÓN The world continues to experience a major pandemic of coronavirus (Covid-19) infection. The new pandemic began in Wuhan, Hubei, China, in late 2019. It was originally called 2019-nCoV and renamed COVID-19 by the World Health Organization (WHO) on February 11, 2020. The WHO, on March 11, declared COVID-19 a pandemic, pointing to the over 118,000 cases of the virusinfection at that time in over 110 countries and territories around the world and the potential risk of further global spread. By late January 2020 Chinese authorities confirmed that the virus had killed 80 people and infected almost 3,000 more. They warned that its spread could accelerate still, with the millions of people traveling all over the country for the Chinese Lunar New Year celebrations. These trips could spreadthe virus abroad. The outbreak of Coronavirus has caused a pandemic of respiratory diseases for which vaccines and targeted therapeutics for treatment are unavailable (Wang et al. 2020). The coronavirus has affected almost all sectors of life, including economies and financial markets. The Braz. J. of Bus., Curitiba, v. 2, n. 3, p. 2994-3001, jul. /set. 2020. ISSN 2596-1934 2996 Brazilian Journals of Business virus outbreak has now become one of the biggest threats to the global economy and financial markets. Even though the novel virus outbreak started in December 2019, financial markets did not react immediately as there was little information on how long it might last, whether China would be able to quickly contain it and prevent it from spreading to other countries, and the risks that a spread would pose for the global economy. There are several papers in literature studying impact of epidemics and a few specifically of Covid-19 on the economy and finance. Chen et. al (2007) examine the impact of the SARS outbreak on Taiwanese hotel stock performance. They find Taiwanese hotel stocks show significantly negative cumulative mean abnormal returns, indicating a significant impact of the SARS outbreak on hotel stocks performance. Yang et al. (2020) study the impact of the coronavirus outbreak on tourism. Employing dynamic, stochastic general equilibrium (DSGE) models, they report that the coronavirus outbreak hinders tourism, consumption, and healthcare systems, and induces welfare levels decline. To facilitate post-crisis tourism recovery, they propose stimulus vouchers for residents to support tourism. Kim et al. (2020) research the impact of infectious and macroscopic epidemic disease outbreaks on financial performance of the restaurant industry. They find negative influence of epidemic disease outbreaks on the restaurant industry, and identify firm characteristics that serve as risk-mitigating factors. Financial markets have reacted to recent unpredictability in economic activities with large drops, triggering circuit breakers on US exchanges four times in March 2020. This safeguard mechanism pauses trading for 15 minutes in hopes that the market will calm down. The U.S. Securities and Exchange Commission mandated the creation of market-wide circuit-breakers to prevent a repeat of the Oct. 19, 1987 market crash, in which the DOW plunged 22.6%. Since then, circuit-breakershave only been triggered once in 1997 before the four times in March 2020. 2 IMPACT OF OUTBREAK ON THE DEVELOPED MARKETS US tech companies rely heavily on China to manufacture their products, so it’s no surprise to see supply chain disruptions severely impact tech giantslike Microsoft, Apple, HP and etc. Microsoft’s shares fell in February 2020, and so did those of chipmakers Intel and AMD, two of its major suppliers. Then again, late February 2020 saw the four consecutive days of virus-related declines for the whole of the US stock market. And as if to add fuel to the fire, new data arrived showing US factory orders for big-ticket items (like cars and appliances) falling in January – even before the worst of the virus had emerged. On Monday, February 24, 2020, the DowJones Industrial Average and FTSE 100 dropped more than 3% as the outlook for the spreadof coronavirusworsened Braz. J. of Bus., Curitiba, v. 2, n. 3, p. 2994-3001, jul. /set. 2020. ISSN 2596-1934 2997 Brazilian Journals of Business substantiallyoutside China over the weekend. This was followedby benchmark indices falling sharply in continental Europe after steep declines across Asia. Developed market indices such as DAX, CAC-40 and IBEX 35 each fell by about 4% and the FTSE MIB fell
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