Despite considerable global political, economic, social and environmental turmoil, financial markets have remained surprisingly stable during the pandemic, the result of substantial global monetary and fiscal policy intervention.
This stability may have been bought and paid for by future generations, but these emergency measures have proved sufficient, at least for the first wave.
On 21 February, global share indices began falling precipitously and signs of a potential liquidity crisis became increasingly evident in March. This was remedied by $5 trillion in global fiscal and financial support, led by a $2 trillion US fiscal package and supplemented by large increases in quantitative easing and rate cuts in the US, Eurozone and UK. The S&P 500, Dow Jones and other US indices all returned to pre-pandemic levels by Summer, as did the NASDAQ (FANG & pharma) which is up by over 20% in October. Likewise, the Nikkei 225 and Shanghai composite indices also recovered with the latter up by 10%. This is partly the result of better pandemic news but was underpinned by the global emergency stimulus and the prospect of a supportive fiscal and monetary environment for some time to come.Despite these emergency measures supplemented by further supports, UK and Pan European indices in October were still down on average by around 20%. Like the Hang Seng, down by 10%, these indices may be impacted as much by political concerns as by pandemic fears. The Hang Seng is impacted by uncertainties with respect to Hong Kong’s political and commercial sovereignty, the UK and European indices are impacted by uncertainties about the stability of EU/UK political and commercial relations and in late October by the uncertainties linked to the US election.
A trade deal might prompt a rapid recovery to levels in line with other global markets that continue to grapple with COVID-19. COVID-19 and Brexit impacts are hard to disentangle, but a 20% recovery of the FTSE All Share to its 21st February level in line with other global markets would generate an increase of £400 billion in market re-capitalisation. Likewise, a 20% re-capitalisation of the STOXX 600 index for European companies would amount to €1.4 trillion (excluding UK listed companies).
For both geographical areas, such an across the board recovery in company valuations would result in an immediate improvement in business investor confidence with knock on effects on business expansion, whether by encouraging renewed direct investment in organic growth or in growth through mergers and acquisitions.
For UK commercial property, restoration of certainty and a break in the logjam of expansionary business investment would help break the logjam in postponed leasing deals. In turn, this would also bring greater confidence to property investors. Better COVID-19 numbers would also help reinstate confidence by assuring investors that, like other pandemics, the COVID-19 pandemic is also transient.
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About the Author
Chief Economist, and Head of Research of Forecasting at Colliers International, Walter Boettcher has over 20 years UK and European property industry experience. Highly renowned for his publications on Brexit, Economic Outlook & Trends, and Property Cycles, Walter has redefined how research can be used to support agency and professional services business development.
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