April Market Rebound

Global markets bounce sharply in April as sentiment swings

Even though 2020 started off on a rather promising note, markets took an abrupt downward turn as we saw the rapid spread of COVID-19 in Europe and the USA bringing economic activity to a sudden standstill. In March specifically, we saw the global economy going from a state of healthy growth and full employment to near hibernation in a few weeks. Equities suffered steep declines and government bond yields fell (prices rose) as many investors made a flight to perceived safe-haven assets.

After the dramatic market movements of March, many investors were left pondering what shape the recovery would take: V, U, W, or L. We have even seen some other predictions indicating that the recovery will be gradual but robust, like the Nike swoosh, or will happen in steps like the Adidas logo. Yes, these are the conversations some of the brightest minds are having…interesting times indeed.

However while we’ve been washing our hands and making sure not to touch our faces, global financial markets seem to have had a change of heart. While the market movements observed in April certainly do not guarantee that the COVID-19 risks have subsided, it does indicate that the dynamic and sentiment changes on an hourly/daily/weekly basis.

US-led market reaction

The following graph indicates that the daily infection rates around the world seemed to have peaked in most regions. The US still has the highest level of new daily infections, total infections and deaths from COVID-19. As the US is the biggest economy and stock market in the world, sentiment seems to lead from data reported in the region. Market participants will keenly watch this data to determine the effect on lockdowns and economic activity across the globe

April Market Performance 

Global

During April you could buy negatively priced crude oil with money earning a negative interest rate. The mere fact that this was possible, illustrates exactly how unpredictable global markets have become amidst COVID-19. Adding to the ‘turmOIL’, was dramatic economic data never seen before, ranging from the astounding US unemployment figures, to unprecedented Chinese GDP and shockingly low global PMI data.

The key stabilizer for financial markets in April has been the sheer magnitude of the monetary and fiscal support that has been promised by global central banks. At present the amount sits at more than $8 trillion. These measures have seen interest rates being cut globally and stimulus payments being made to the public by wealthier nations. It is hoped that this stimulus will alleviate some of the financial burden faced by those filing for unemployment.

Over the course of April, markets continued to struggle between the data being reported, the stimulus measures taken by governments, and the gradual unlocking of economies from May 2020. Corporate earnings as well as GDP growth data from major nations will be eagerly watched by investors.

The month ended on a relatively high note, as positive news regarding the use of Remdesivir as a treatment for COVID- 19 buoyed markets and swayed risk sentiment once more. In the last meeting of the US Federal Reserve, Chairman Jerome Powell vowed to use the “full range” of tools to help the US economy, which further boosted sentiment at month- end.

Local

In South Africa we have seen the rand reach all-time weak levels, as global investors fled risk assets and piled into cash. South African government bonds were finally rated non-investment grade (junk status) by Moody’s. Subsequent to this, both Fitch and S&P further downgraded their ratings of SA government bonds (which they had previously downgraded to junk status).

President Cyril Ramaphosa announced a half trillion rand stimulus package to help aid the economic woes of South Africans. These measures are expected to place a further burden on already concerning debt-to-GDP projections made by our finance ministry. Although these actions are necessary for the benefit of society, it is also refreshing to hear the rhetoric from Minister Mboweni regarding possible structural changes and financing assistance from the IMF. As South Africa moves to a level 4 lockdown, the eyes of the public, as well as investors, will be on the ongoing measures taken by government to re-open the economy and ensure necessary aid is delivered to those who need it the most.

Staying the course

Investors who have remained invested and stuck to their long-term objectives have been rewarded for their discipline. While markets have not recovered to levels seen in February, there has been a sizeable rally in the last month to compensate investors for the risks taken. Whether this rally proves to be fleeting or permanent remains to be seen and is impossible to predict. We therefore would advocate remaining committed to the investments you have been exposed to (unless your personal circumstances have changed). At Graviton, we remain committed to the active management of risks within portfolios and will remain engaged with you during these times.

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