This, too, shall pass – or will it?

  • DavidShapiro
In nearly 50 years on the stock exchange, the current crisis is the eleventh major downturn in financial markets I’ve had to navigate. Each crisis exhibits different characteristics.
by DAVID SHAPIRO | Apr 02, 2020

Some, like the internet bubble in 2000, were easy to forecast, others like 9/11 weren’t. The collapse of the sub-prime mortgage market in 2008 took ages to put behind us, while the recovery from the 1987 crash was swift.

What distinguishes the present downturn from others is that the economic slump has been orchestrated by government decree to mitigate against the spread of disease by closing businesses, limiting social interaction, banning international travel, and postponing or cancelling sporting events and other forms of entertainment. One can’t talk of a fall in the economy or collapse in the market using conventional terms. This isn’t a traditional recession or bear market.

Still, in all instances, our emotions are stretched to the limit. Fed with a constant stream of bad news through all channels of the media, we see only despair and misery, never believing that the darkness will end and that our former lives will return. Hours of worrying turns to days, days to weeks, and weeks to months.

Yet, somehow, each crisis passes. So, too, will this unfortunate tragedy. We don’t know when, but we know it will. And surprisingly, we will pick up the pieces and continue to appreciate our lives.

Financial markets are forward looking, and the shock value of the spread of the virus around the world has already been discounted in equity prices. That doesn’t mean we’ll see a sharp turnaround soon.

Even considering the wide-ranging stimulus packages that administrators and central bankers have injected into the global economy, concern about how badly the shutdowns will harm the global economy and how long it will take for businesses and consumers to find their feet again could keep investors sidelined for some time.

However, updates that infection rates are slowing or that health authorities are coping adequately with the influx of casualties might be enough to lift spirits and put energy back into the stock market.

Each crisis leaves us looking back with regret and introspection, and raises conversations about what we could have done to prevent it. And, it doesn’t take long before governments and regulatory bodies legislate measures to prevent any kind of repetition of the menace that threatened our financial, physical, and mental well-being.

After 9/11, airports introduced stringent safety checks that remain in force today. Governments bidding to starve terrorist organisations of their funding launched stern money-laundering regulations.

Following the near collapse of the world economy in 2008, banks were justifiably tamed from using their capital to trade speculative financial instruments for their own profit.

Similarly, when we emerge from the present gloom, sweeping changes will be proposed to aid and lift society, changes that could provide interesting investment opportunities.

The failure of the world’s richest economies to cope with the rapid spread of the disease has exposed alarming weaknesses in the administration of public health services. City hospitals have been caught short of beds, equipment, and health professionals. More frightening has been the prospect of people with the disease hiding their illness and reporting for work for fear of losing a day’s wages.

Following the 2008 financial crisis, banks have frequently been put through rigorous tests to analyse whether their businesses could cope with the stress of another crisis. In future, we foresee comparable exercises being administered on the health industry. Governments will vote huge budgets to ensure the sector passes the test. Affordable medical cover will be a given for most developed nations.

Over the past few years, it has been common for governments to put pressure on the health industry to reduce the price of drugs and services. It has led to reduced healthcare benefits, and curbs on pharmaceutical budgets for research and development. No more. The current emergency has highlighted society’s need to foresee future outbreaks and ensure readiness to engage in mass testing with immediate outcomes.

Without question, the big winner will be the technology giants. With immense criticism and disapproval directed at their size and power, countries, businesses, and households wouldn’t have survived without the services provided by organisations such as Amazon, Netflix, Facebook, Google, Apple, and many more related businesses. Their platforms have withstood an epic increase in traffic as schoolchildren stream educational programmes, companies arrange virtual meetings, families shop for food online, and teenagers keep themselves amused by downloading games and movies.

The importance of hygiene has never been a priority in our lives. Physicians, virologists, and epidemiologists have hardly attracted the celebrity status enjoyed by investment bankers and hedge-fund traders, but the way that COVID-19 has jolted our lives will alter our mindset and attitude for generations. If there is one lesson learnt from our present situation, it’s that trading strategies and valuation models can’t heal a community.

  • David Shapiro is a veteran stockbroker, market commentator, and deputy chairman at Sasfin Securities.

1 Comment

  1. 1 Cliff 02 Apr
    Why did the world stock exchanges remain open during Corona? They are not essential services.  The monumental drop in share prices have merely given the Chinese the open door to buy buy buy....and they will end up owning more and more of the world. They have won the 3rd World War through a virus and financial gain.  


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