By: The Quinnipiac University Economics Research Team, Jack French
Source: Own calculations based on data collected from each index.
Stocks slumped worldwide at the end of this past week as coronavirus fears worsened once again. This was true for the stock markets in Central Europe as well as the US and UK. The S&P and FTSE lost some ground over two weeks with only one of the CEE indices, the Czech PX, doing worse. The Polish WIG 20 lost a fraction of a percent but slightly outperformed the two benchmark indices.
The remaining three CEE indices all performed pretty well. The Slovakian SAX and Romanian BET both finished up about one percent but were greatly outpaced by the Hungarian BUX gaining nearly three percent. Aside from the BUX and PX, the indices moved pretty closely to each other and appear fairly correlated to the US index. The BUX and PX movements did share some of the general movements of the remaining indices somewhat but finished well outside the otherwise tightly packed grouping.
Looking ahead, the global economic outlook has declined significantly in the last few weeks. The coronavirus has already been noticeably altering financial markets, but this could worsen if more businesses begin to see lower demand. The travel and tourism industries, particularly in China, have been suffering recently, but the full extent of the virus’s impact remains unclear at this time.
Source: Own calculations based on data collected from each index. The first graph shows the previous week’s performance. The remaining graphs show the three-month performance of each of the indices.
Despite the US S&P briefly reached another record high before the sharp downturn on Friday, its performance over the last month or so has been uncharacteristically inconsistent. Nearly all indices have either been flat or lost ground over the past four or five weeks as investor sentiment has been fairly up and down, and all of the indices closed the past week below their three month highs.
The Romanian BET has retained a fairly steady upwards trend but this cannot really be said for any other Central European index. The Czech PX and Hungarian BUX have seen a much higher degree of fluctuation over the last few weeks than at any point in the trailing several months. The graph of the Slovakian SAX shows something of an outlier as it has actually gained in the last month, but this is almost entirely due to a sharp spike in value right around January 21. The Polish WIG 20 is still the only index with a negative return over the last three months and is down around four percent in that timeframe.
Worries over the coronavirus and the chance of it causing a substantial economic slowdown have been triggering selloffs on and off for a number of weeks now. As the indices drop expect to see traditionally safer assets like gold and US bonds go up in price due to investors seeking shelter as evidenced by the US 30-year bond yield hitting a record low this past week. With the global economic outlook unclear, much of the sentiment is still leaning towards the US economy overcoming what investors hope is a short term hurdle. However, recession fears have been reignited after having cooled off over the last year or so.