Imagine the current volatility as a weighing scale. On one side are investors, fearful of how much worse the Covid-19 pandemic will transpire. On the other side are global authorities who have not held back on taking measures — border controls to limit viral spread, monetary stimulus to lower the cost of corporate debt and fiscal stimulus to support vulnerable consumers and businesses. The US Fed has led by cutting interest rates to zero, the European Central Bank has increased quantitative easing and about 30 central banks have followed rate cuts. Attention is now focused on how much fiscal stimulus governments globally will inject.
SINGAPORE (Apr 9): Investors come in different shapes and sizes but right now they all have one thing in common — fear. The global stock market is down about 30% for 2020. The question of whether US stocks can sustain their decade-long bull run has been answered with a resounding ‘no’. While few would have predicted that a global pandemic would trigger the free-fall, the US is now formally in bear-market territory, having fallen over 28% from its peak in February this year.
The sell-off has been indiscriminate across most markets globally, even for traditionally defensive sectors like healthcare or utilities. On the flipside, any government bond that is considered remotely safe has been in high demand. The US Treasury bond yields have also reached new troughs before rebounding. Witness the proverbial ‘flight to safety’ but as financial markets are delicately balanced — which way will they tip?
