By: The Quinnipiac University Economics Research Team, Jack French
All Central European markets were closed on Friday. While it’s impossible to say for certain, the Friday closure may have contributed to all five markets outperforming both the US S&P and UK FTSE, both of which were open all week. The Hungarian BUX had a remarkably strong week and finished up six percent. The Romanian BET fell slightly for the second consecutive week marking it the only CEE index down for the week. The Slovakian SAX gained about a third of a percent, the Czech PX was up nearly two percent, and the Polish WIG 20 rose over three and a half percent. The US and UK markets were closely correlated to the CEE indices through the first half of the week but fell sharply on both Thursday and Friday. It is possible but certainly not guaranteed that the CEE markets will have to experience a similar drop when the market opens on Monday.
Source: Own calculations based on data collected from each index. This graph shows the performance of each index with the reference date of February 17th.
A strong week for the Hungarian market means the BUX has caught up to the other Central European indices after having trailed behind since the beginning of April. As of now all of the CEE markets save Slovakia are between about 20.5% and 22.5% off their pre-outbreak levels. The UK FTSE fits into that range as well. The US market has had a rapid recovery and, accounting for a poor finish to the past week, is only about 16% off its recent high.
In the early stages of this outbreak the hope and expert opinions were for a so called “V shaped” recovery where the market quickly snaps back to where it was before the crisis. After the extent of the economic damage became clearer doubts began to form about how sharp the recovery would be. Now with the late week drop in the US equities the fear is for a “W shaped” recovery where the market will return to at least close to the March bottom. Whether or not there is any truth in that or if it is just an overreaction to a complex and constantly changing situation will only become clear over the coming months.