OPINION7 May 2020

The coronavirus market effect

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Covid-19 Finance Healthcare Impact Opinion

Lorna Tilbian, chairman of Dowgate Capital, writes about the impact of coronavirus on the markets, in her latest column for Impact.

Covid-19 coronavirus data graph_crop

With stock market valuations higher than in 2000 and debt levels greater than in 2008, Covid-19 looks like the black swan event, the systemic shock – like 9/11 or Lehman Brothers – that ends this economic cycle and heralds the next recession. A cascading of events in a globally complex and interconnected world.

The system can handle ‘contained’ shocks, such as Argentina defaulting, the Greek debt crisis, the Asian tsunami, or the Japanese earthquake/Fukashima death toll, where collateral damage is, to an extent, contained and limited. What the market cannot do is price in systemic hidden risks.

Looking back at the global financial crisis (GFC) is a useful exercise. On 7 February 2007, HSBC announced losses related to Household International’s sub-prime mortgages. If it had just been HSBC, the market would have looked through it, but – as history proved – ‘lax lending standards’ was a virus that had infected huge swathes of the global financial system. New Century ...