How much destruction has the COVID-19 pandemic and the oil price war inflicted on the world financial markets this year? it has probably been the most destructive sell-off this century
The figures have been alarming. About $15 trillion has been wiped off world stock markets, as crude oil has slumped 60% as Saudi Arabia and Russia have started a price war and emerging markets like Brazil, Mexico and South Africa have seen their currencies plummet over 20%.
Volatility and corporate debt market stress have spiked on worries that whole sectors could go bust, airlines around the world have had half their market capitalisation vaporized while cratering economies risk a new wave of government debt crises.
That carnage has seen 22% and 24% slumps for Wall Street’s Dow Jones DJI and S&P 500 SPX, almost 25% for MSCI 49-country world index 27% for London’s internationally exposed FTSE.
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For the record, quarterly drop for Wall Street was 40% in 1932 in the midst of the Great Depression. The fact that the S&P and Dow were at record highs back in mid-February has made the crash this time seem more brutal.
Stocks in China, where the virus hit first, have fared relatively well in comparison with only an 11% drop in dollar terms but the impact on other major emerging markets has been devastating as their main commodity markets, and currencies, have also collapsed.
Russian stocks, which topped the tables last year, have been routed 40% in dollar terms. South Africa, which was stripped of its last investment-grade credit rating on Friday, has fallen by the same percentage, though Brazil has been the worst, plunging 50%.
A large part of that is down to some wild currency market moves. All three of those countries have seen their currencies lose over 20% this year, which also ties into the commodity market carnage.
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Brent crude oil has fallen by 62% in the quarter to just $25 a barrel. This was not only because of the coronavirus crisis, but also the price war between Saudi Arabia and Russia, which is putting their public finances at risk.
Industrial metals like copper aluminium and steel have all dropped 15-22% and some agricultural staples like coffee and sugar are down 17% and 10%.