Covid-19 hit global stock markets, China avoided turbulence

As Covid-19 spread around the world, stock markets across countries took a major hit, yet markets in China where the disease first struck avoided significant falls, a new study has shown.

Researchers at Lero, the Science Foundation Ireland Research Centre for Software based at the University of Limerick in Ireland pointed out that global stock market losses of $16 trillion were observed in less than a month as the Covid pandemic took hold and as fears rose of a worldwide recession.

However, it did not have the same impact in China or on the global index (MSCI World). Lead author Niall O’Donnell said the current pandemic provides us with a unique opportunity to identify the effect that pandemics have on financial markets.

“Our findings indicate that investors began to act before any realised financial damage was observed, highlighting again the significance of investor sentiment and the expectation of returns, rather than real revisions in financial returns,” said lead author Niall O’Donnell from the varsity.

“We additionally found that changes in the Chinese SSE 180 index and the MSCI World index prices were not significantly explained by Covid-19 growth.

“Instead, these indices were largely influenced by conventional market drivers linked to economic growth such as crude oil, bond yield spreads and implied volatility. We theorise based on these results, that among these factors, early interventions by China may have played a role in index price fluctuations also,” O’Donnell said. The study results are forthcoming in the Journal of Behavioral and Experimental Finance.

The study into the determinants of global stock market indices as Covid-19 spread provides valuable insights into the evolving market dynamics and price drivers during times of crisis and uncertainty, the researchers said.

Further, markets in Spain, Italy, the UK, and the US were also found to be negatively and significantly related to the total number of Covid-19 cases. This occurred despite controlling for other market drivers.