Financial markets react quickly and erratically to unexpected events, but the impact of the Covid-19 pandemic is unprecedented during peacetime. Covid-19 has produced, and is continuing to produce, rising economic and social costs on an international scale. However, the impact has not been uniform. Working with colleagues at Queen Mary University of London and the Universities of Kent and Westminster, we have analysed the intensity, timeliness and homogeneity of the impact of Covid-19 across the G7 markets – the USA, the UK, Canada, France, Germany, Italy and Japan – to see which areas (geographically and financially) have been hardest hit Our reviewof 10 business sectors (Consumer Goods and Services, Financials, Healthcare, Industrials, Materials, Oil & Gas, Technology, Telecommunications and Utilities), shows evidence of the crisis across all sectors and in all G7 countries, though neither the intensity nor the timing are uniform. More capitalised and with better liquidity, financial institutions were better placed generally to cope with these unparalleled circumstances than they were in 2008, when they reacted tothe Lehman Brothers collapse . In 2020, financial markets again face record-breaking stock market losses. These began on February 24th, a full two weeks before the World Health Organisation declared Covid-19 a pandemic. Severe disruptions to supply and demand are the consequence of school and business closures, employee furloughs and lay-offs, the shutdowns of hotels and restaurants, national and international travel restrictions, operational overhauls for the world’s airlines, and general population lockdowns, all of which prioritise the control of the virus infection rate. Our analysis found strong evidence of a crisis in all G7 countries and each of the 10 business sectors, suggesting a universal impact of Covid-19. However, not all business sectors were affected with the same intensity or at the same time. Overall, volatility increased by an average of 22 per cent. These spikes are comparable to the 2008 Global Financial Crisis, Black Monday, and even theGreat Crash of 1929 . The reaction was most intense in the Healthcare and Consumer Services sectors, with uncertainty related to hospital bed capacity and the search for an effective vaccine in the former, and the shutdown of restaurants, hotels and the travel industry, combined with the dire situation facing the world’s airlines, key factors in the latter. Telecommunications and Technology were among the sectors least severely affected as lockdown measures meant people were looking for distraction and entertainment online and at home. We found that the UK and the USA financial markets were hardest hit, with more uniform impact across business sectors. It is interesting that these are the markets with the highest heterogeneity in the Covid-19 response, a possible reflection on the financial markets of the indecisiveness and ambiguity of the political response to the pandemic crisis in those countries. Our analysis brings unique insight to the intensity, timeliness and the homogeneity of volatility shifts as well as the rankings of countries and sectors. The asymmetric impact on the various sectors suggests that tailored financial support packages from governments will be needed to aid survival and speed recovery in those areas hit most severely. Extraordinary stimulus packages are in place in many nations to boost the economy, including direct payments to affected households and businesses, funds for healthcare system, extended outreach of the social safety net, and even prohibiting of lay-offs in certain jurisdictions. Governments must soon pass the initiative to employers and employees, where capital investments are more likely to be directed to longterm viable activities. Beyond the immediate short-term reactions to the crisis, the world economy faces obvious risks. Furlough schemes, such as that employed here in the UK, with the Government initially paying 80%of staffwages , might delay the transition to a post Covid-19 world, while the provision to ameliorate immediate needs may result in essentially ‘zombie’ companies 28 |
RkJQdWJsaXNoZXIy NTI5NzM=