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FERI Markets Update February 2020 - Financial Markets: Coronavirus as a Global Risk Factor

Bad Homburg, 02/26/2020
from Dr. Eduard Baitinger, FERI AG
  • Global virus spread forces financial markets to reassess risks
  • Emerging markets will be disproportionately burdened
  • "Super Tuesday" in the USA with potential for political surprise

Rising numbers of infections in South Korea, Japan and most recently also in Italy are increasing fears of a global spread of the coronavirus. Therefore, after an already weak end to the previous week, the global stock markets recorded significant price declines again at the beginning of the week. At the same time, the bond markets show various new interest rate lows, while the gold price in euro reached a new all-time high. Against the background of these drastic price patterns, the question arises whether the strong market reactions are justified. Indeed, a coronavirus pandemic would have very negative consequences for the global economy. The economic damage would be caused less by the pathogen itself, but mainly by the measures necessary to contain it. In China, massive quarantine measures have paralysed the economic activity. The Italian government has also sealed off entire districts in the important industrial region of northern Italy. At the global level, the economic consequences of such measures would be disproportionately greater.

The probability of this scenario has recently increased significantly. The recent price losses are a clear signal that the threat of a global pandemic, with corresponding consequences for the real economy, is being reassessed by the financial markets. The extent to which corrections could happen depends largely on the further course of the epidemic. So far, the main sufferers of the coronavirus have been emerging market equities, which have been hit by several effects. On the one hand, by the economic slowdown in China, on the other hand by the interruption or obstruction of global supply chains, and finally also by the strong US dollar (USD), which makes debt servicing for foreign loans considerably more expensive.

"Super Tuesday" as a Political Risk Factor

In addition to the corona virus, the markets are also threatened by the US domestic policy, namely the Democratic Party's candidate selection for this year's presidential election. Currently, the radical-progressive candidate Bernie Sanders has a good chance of winning the primary elections. Sanders stands for tough regulatory policy, which would drastically reduce profit margins, especially in the IT and healthcare sector. Although this risk is not unknown, the financial markets have so far hardly taken it into account. This could change abruptly if Sanders emerges as the clear favourite for the nomination at the so-called "Super Tuesday" on March 3, when the majority of US states vote. In this scenario, new corrections and continued pressure on US equities would certainly be expected.


About Dr. Eduard Baitinger

Dr. Eduard Baitinger has been Head of Asset Allocation in the FERI Group since 2015. He is responsible for quantitative asset allocation at FERI Trust, where he also manages and coordinates numerous research projects. In close coordination with the FERI Board of Directors and Chief Investment Officer, Dr. Heinz-Werner Rapp, he also represents the investment strategy of the FERI Group and its communication to clients and customers of FERI.

Before joining FERI, he was a research assistant at the University of Bremen and financial analyst for an asset manager. In 2010 he completed his studies at the University of Bremen, accompanied by a stay abroad in New York, as a graduate economist. In 2014, Eduard Baitinger received his doctorate with distinction on new approaches to quantitative asset management. Dr. Baitinger publishes regularly in academic journals and acts as academic reviewer.


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:

•    Investment Research: macroeconomic forecasts and asset allocation analyses
•    Investment Management: institutional asset management and private wealth management
•    Investment Consulting: advisory services for institutional investors and family offices

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 38.1 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. Eduard Baitinger
Dr. Eduard Baitinger
Dr. Eduard Baitinger
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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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