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Corona Shock: Stock Markets Evaluate New Risk Scenarios

Bad Homburg, 03/17/2020
from FERI AG
  • Global economy in 2020 with clear recessionary tendency
  • Markets forced to abruptly assess risk
  • Central banks face excessive demands
  • USA threatened by CoViD19 and Trump ignorance

The global stock markets have reacted with sharp price losses to the "corona shock", which is already leading to massive restrictions on economic activity. The expectation of a global recession was priced in rapidly in just a few trading days. Currently, almost all stock markets are showing clear "oversold" signals. This usually creates a good basis for rapid technical recoveries and potentially favorable buying opportunities. "However, as the extent and duration of this global recession is difficult to estimate, extreme caution is currently necessary", warns Dr. Heinz-Werner Rapp, CEO and CIO of FERI. Both a short slump ("V-shape") and a long and deep recession ("U-shape") are possible. Uncertainty about the further course of developments requires thinking in scenarios for the time being.

Scenario 1 - Short Plunge

If the pandemic dies down within a few months (as the example of China would suggest), a significant recovery of the global economy could be expected as early as the second half of 2020 - not least because of the massive global stimulus packages. "In this scenario, the stock markets could soon begin a sharp upward trend again," says Rapp. For investors, exceptionally attractive buying opportunities would then soon be available.

Scenario 2 - Deep Recession

Should the containment of the pandemic require massive measures beyond the middle of the year, which would inevitably lead to a prolonged "lockdown" of economic activities, the numerous aid measures taken by central banks and governments would initially fizzle out. According to FERI, this scenario would lead to a deep and complex global recession. In this case, price losses of 50 to 70 percent would be possible at peak times, as in the financial crisis of 2008. "If this happened most investors would have to largely write off the investment year 2020," stresses Rapp.

Taking a Look at America

The capital markets currently seem to be moving closer to the second scenario, which according to FERI estimates has a probability of at least 45 percent. If this remains the case, investors would face further price losses, as the consequences of a prolonged global recession have not yet been fully priced in. In the coming weeks, much will depend on how the USA meets the challenges posed by CoViD19. "Due to its patchy health care system, the USA could be hit harder than many people have assumed. Also, President Trump's long ignorance in dealing with the corona virus is hardly helpful," warns Rapp.

Central Banks Increasingly Overburdened

While the ECB has not yet found an effective answer to the corona shock, the FED has already pushed forward with panicky interest rate cuts twice. In both cases, however, the stock market reacted negatively, which indicates that monetary policy measures are becoming increasingly ineffective. From now on, the focus will be on fiscal policy measures that are being prepared worldwide. Even the Trump government has now declared a national emergency, which gives the US room for far-reaching countermeasures and financial aid programs.


About FERI AG

Founded in 1987 and headquartered in Bad Homburg, Germany, the FERI Group has developed into one of the leading investment houses in the German-speaking area. FERI offers tailor-made solutions for institutional investors, family assets and trusts in the following areas:

The FERI Cognitive Finance Institute was formed in 2016. It is the strategic research centre and creative think tank of the FERI Group. The Institute focuses on innovative analyses and the development of methods for long-term oriented economic and capital market research. 

FERI and MLP currently have assets of EUR 39.2 billion under management. A total of EUR 8.5 billion of these assets are alternative investments. The FERI Group is headquartered in Bad Homburg and has offices in Dusseldorf, Hamburg, Luxembourg, Munich, Vienna and Zurich.



Media relations contact

Katja Liese

Member of the Management Board

Corporate Strategy, Marketing and Communications

T +49 (0) 6172 916-3192

F +49 (0) 6172 916-1192

presse@feri.de

FERI AG

Rathausplatz 8-10

D-61348 Bad Homburg

Dr. Heinz-Werner Rapp
Dr. Heinz-Werner Rapp
Dr. Heinz-Werner Rapp
Dr. Heinz-Werner Rapp
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Katja Liese
Member of the Management Board
Corporate Strategy, Marketing and Communications

T +49 (0) 6172 916-3192
F +49 (0) 6172 916-1192
presse@feri.de

FERI AG
Rathausplatz 8-10
D-61348 Bad Homburg

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Katja Liese
Member of the Management Board
Corporate Strategy, Marketing and Communications

T +49 (0) 6172 916-3192
F +49 (0) 6172 916-1192
presse@feri.de

FERI AG
Rathausplatz 8-10
D-61348 Bad Homburg

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