ECON1020 Impact of Coronavirus on Stock and Financial Market Assignment Sample

Prices and Markets

The impact of the coronavirus outbreak on the Australian economy will be more significant than the consequences of wildfires. In December 2019, the Australian government downgraded its budget surplus forecasts for the current and next fiscal years, noting the negative impact of the US-China trade dispute on the global economy (PWC, 2020). Earlier in February, the Reserve Bank of Australia (RBA) warned that the coronavirus was a source of uncertainty for the economy, but did not provide an estimate of its impact on the country's GDP growth. In the fall of 2019, large-scale wildfires began throughout the country, as a result of which more than 30 people died and thousands of homes were destroyed. According to the RBA, the fires will reduce the country's GDP growth by 0.2 pp. in the second and third quarters of the current fiscal year. The central banks of Australia and Malaysia joined the fight against the consequences of the epidemic, cutting interest rates in Mar 2020 by 0.25 percentage points to 0.5 and 2.5%, respectively.

In August 2020, Australian shares jumped dramatically as technology stock market hit a record high, while the significant slowdown in daily new coronavirus cases boosted hopes that the lethal second wave might recede. Victoria state, the nation's second most populous state, saw its lowest daily increase in new cases of COVID-19 in seven weeks, after tight lockdown restrictions. Prominent economists predicted that Australia is heading towards a recession during first half of current year because of Coronavirus continuing impact (Economic Times, 2020). This put the stock market on its worst day since beginning of financial crisis worldwide. According to the semi-annual economic forecast, Australia's budget surplus in the current fiscal year, which ends June 30, 2020, will be 5 billion Australian dollars ($ 3.4 billion), in the next - 6.1 billion. (Economic Times, 2020)

The liquidity pumped at a great pace on the lists (15 trillion billion in the last 10 years) is however a double-edged sword: wanting to continue on the thread of the metaphor is like a tide. "It grows when the mood of investors is skyrocketing, but is ready to retreat very quickly when fear reigns supreme," warns Tad Rivelle, head of fixed income investments at Tcw, an independent Californian company that manages assets for 217 billion dollars. And the coronavirus is obviously entitled in all respects to instill fear among investors, to the point of being able to trigger a liquidity crisis that basically remains an aspect rooted in the markets.

About $ 140 billion from the share price was eliminated, with the ASX200 losing 7.33%, losing 455 points to 5,760 points. Also, the AUD -Australian dollar is also suspended in liquidation and traded at $ 63.98. The S&P/ASX 200 index rose 0.3% to 6,129.60, snapping two straight sessions of losses. Josh Frydenberg’s forecast that effective unemployment in Australia would breach 13% by the end of September amid lockdowns. In this case, the focus is instinctively on the reverse world of bonds, the one in which trillions of bonds travel at negative rates: the 21st century paradox of paying to lend money to an issuer. If we restrict the field to government bonds only (and exclude BTp), the reaction to the escalation of tension on the markets has actually turned into a hunt for Bunds (whose ten-year yield has returned to -0.50%), Treasuries (historic lows at 1.33%) and other government bonds perceived as a safe haven in the storm.

As per the analysis of Herrmann, the rates of unemployment are likely to be raises, government payments, including JobKeeper and JobSeeker, have kept people employed but can’t go on forever. There are huge risks to the real economy, but the stock exchange party continues as if nothing has happened, it cannot be good in the long run. Tech stocks rose 3.2%, after hitting the Nasdaq Composite in August 2020. After pay, the largest stake in the sub-index, rose 4.8% after the company that buys now pays it later said it would do so. It acquired Pagantis, based in Spain, and expanded into Europe. Heavy miners rose 0.6%, with Fortescue Metals Group and BHP Group adding 3.2% and 0.6%, respectively. The Commonwealth Bank of Australia, the largest lending bank, slipped by 1%, making it the biggest loser among financial institutions. The rest of the lower Big Four banks were also closed. The New Zealand S&P / NZX 50 benchmark rose 0.7% to close the session at 11921.07. Prime Minister Jacinda Ardern extended the coronavirus lockout in Auckland to the weekend in a bid to allow the country to gradually withdraw from the range of emergency restrictions.

Stock market indices are tumbling in Asia, from Seoul to Wellington (-3.70%). The S & P / ASX 100 index, a barometer of Australian markets, closed with a plunge of 7.33% to 5,760.60 points. This is its worst daily fall since October 2008 and the global financial crisis. This stock market fall, in line with the major Asian markets, was fueled in particular by the massive sales of energy and mining stocks. BHP lost 15% and Rio Tinto 6.35% on the Sydney Stock Exchange (XJO). The large Australian city is located less than 2000 kilometers south-west of Noumena. The Australian stock market's benchmark, the S & amp; P / ASX200, fell nearly 5.7%, or 335.8 points, to 5,880.4 in the first two hours of the session, the worst open since the financial crisis. The losses recorded were around 120 billion dollars (74.5 billion euros).

Australian companies rushed to the stock market in April, raising more money than any point in the last decade to fortify their balance sheets and take advantage of relaxed market rules that critics argue have favoured large investors at the expense of retail shareholders. Companies raised $8.9bn in April, the biggest monthly total since the crisis period of 2009 and a sum that rivals the $11.1bn raised in the US — a market 28 times the size of Australia’s (Henderson, 2020). The data, from Bloomberg, include deals greater than $20m and excludes the handful of small initial public offerings in the US. The burst of activity reflects the push for companies around the world to raise money to get through the downturn caused by the coronavirus pandemic, which threatens to push millions of Australians out of work and end the country’s three-decade run without a recession. The 36 deals in April spanned all sectors and were led by a A$3.5bn raise (US$2.25bn) by National Australia Bank, one of the big four that dominate the local market. Businesses initially tapped the stock market as a defensive move, but more recently have moved to build war chests to hunt attractive assets. “The first batch of capital raisings were genuine balance sheet exercises but increasingly companies are looking to raise funds for growth purposes and to participate in distressed sales,” said John McLean, head of capital markets origination for Australia and New Zealand at Citi. The deals have delivered A$305m in fee revenue to investment banks such as Macquarie Bank, JPMorgan and Citi since the end of March, according to data from 33 deals tracked by Ownership Partners, a proxy adviser. (Henderson, 2020)

The wave of capital raising has been helped by emergency measures to ease access to funding, launched by the Australian Stock Exchange and the country’s securities regulator. Under rules introduced on March 31, companies can raise up to 25 per cent of their share base in discounted placements to big investors, an increase from 15 per cent. The measures will expire in July. The arrangements let companies raise vast sums quickly and give large investors — such as the nation’s super funds that steward trillions of dollars in pension assets — access to cheap stock. Webjet, a travel group hit hard by the shutdowns, raised A$231m in an April placement at a 55 per cent discount to its closing share price. The stock has since fallen but remains two-thirds above the price of the placement, delivering a bumper profit to large investors involved in the deal. NAB’s placement was priced 8.5 per cent below its closing stock price.

The rule change has sparked a backlash from some shareholder advocates. New placements can dilute the holdings of retail investors who have no say in whether they go ahead. Companies are required to offer a separate allocation of shares to retail investors, but these accounted for just 9 per cent of the money raised in the deals tracked by Ownership Matters. “Retail shareholders have been systematically diluted because of preference being given to institutional shareholders,” said shareholder activist Stephen Mayne. He pointed to the NAB deal as particularly alarming. Retail shareholders received an allocation representing 17 per cent of the discounted institutional placement despite the fact they own 48 per cent of the bank’s stock. “National Australia Bank confirmed that retail shareholders are poorly treated,” Mr Mayne said. However, that consideration may be overshadowed by the need to keep banks in good health. In March, the central bank launched a new program to provide the country’s lenders with cheap funding — a move that indirectly helped NAB’s capital raising. “Having learned the lessons from the global financial crisis, the government moved very swiftly to avoid an erosion of confidence in the financial system,” said Mr McLean. “It gave the entire market a lot of confidence.” (The New York Times, 2020)

References for Impact of Coronavirus on Stock and Financial Market

bloomberg. (2020). Country market capatilization based on data from 30 April 2020. Retrieved from bloomberg: https://www.bloomberg.com/markets

Economic Times. (2020). Australia shares end higher on tech surge, virus slowdown optimism. Retrieved from https://economictimes.indiatimes.com/: https://economictimes.indiatimes.com/markets/stocks/news/australia-shares-end-higher-on-tech-surge-virus-slowdown-optimism/articleshow/77718704.cms

Henderson, R. (2020, May). Australian companies head to stock market in biggest rush since ’09. Financial Times.

PWC. (2020). The possible economic consequencies of novel coronavirus pandemic. Australia Matters.

The New York Times. (2020). Tech Meltdown Drags Wall Street Lower. Retrieved from www.nytimes.com: https://www.nytimes.com/live/2020/09/08/business/stock-market-today-coronavirus

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