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The message of the year, according to the OTP analysis, is that an event can occur at any time that completely redesigns economic and market perceptions, so diversification and risk management are key even when market conditions they seem balanced.
The analysis recalls:
The coronavirus crisis has shocked the economy in a way unprecedented in history.
This was not a business cycle-related collapse, but the full impact of measures to prevent the spread of the epidemic halted entire sectors, triggering a global recession.
In the first wave of the virus, the hotel and event industry, tourism and commerce were all but shut down and supply chains were disrupted as well. This caused shocks in both supply and demand. In the second wave, production and trade had already recovered, so related sectors suffered less in this period. However, other areas, especially tourism and hospitality, have suffered large additional losses. The collapse was more severe in much of the world than in the global crisis of 2008-2009.
According to the analysis, the economies of each country have been affected to varying degrees by the crisis:
In the second quarter, which reached a low, China’s GDP fell 6.8%, while the United States fell 31.4%, the euro area 11.4% and in the case of Hungary the contraction was 13.6%.
Spring stock indices showed movements of a magnitude, direction and speed unprecedented since 2009. In some periods, all asset classes posted losses at the same time, including bonds, stocks, commodity market products, including even gold. The clear goal of asylum seekers and loss reduction was cash, within which capital flowed into classic safe-haven currencies (US dollar, Swiss franc, Japanese yen).
To general surprise, after April lows, risk appetite returned to markets very quickly and some stock indices soon hit a new all-time high.
The main reason for this phenomenon is that the world’s leading central banks have taken immediate and decisive action. They responded to the challenges of the crisis with interest rate cuts and unprecedented levels of money printing. Meanwhile, governments have also sought to mitigate economic damage and have embarked on massive spending at the cost of drastically increasing budget deficits. In the United States, the expected deficit could reach 20 percent of GDP by 2020, but even Germany, famous for its fiscal discipline, has helped troubled sectors with hundreds of billions of euros, and a budget deficit of more 10 percent could be realistic for the eurozone as a whole.
Stocks faced the crisis with tight price levels after a ten-year “bull market”, so the rate of decline in exchange rates was unprecedented. At the same time, the rally also happened so quickly that many investors lagged behind at such attractive buy levels in hindsight.
The second wave of the virus no longer left a lasting imprint on exchange rates, so in the fall they showed new records in response to the news about vaccines. After the initial general selling pressure, the market made a clear distinction between companies, both geographically and sectorally.
According to the OTP analysis, Asian markets rebounded before the shock and also produced higher profits due to more successful control of the coronavirus, which affected economic activity less in the region as a whole. Among the major stock markets, China is considered the winner of the year 2020, but the Japanese market has also performed convincingly. And the US stock market has repeatedly outperformed the European stock markets in the fight against the two largest developed markets.
In a sectoral sense, the performance of actors in the traditional economy and in the Internet-based economy is separate. With the rise of home offices and e-commerce, the technology sector performed better. Furthermore, there is still the possibility of a lasting technological paradigm shift that has further raised already high valuation levels. Once again, the health roles performed well, among which new stars were born. In addition to current exchange rates, the names of companies involved in the development of promising vaccines are accompanied by goodwill.
As the only effective way to curb the spread of the virus has proven to be to minimize physical contact, the biggest victims of the crisis have been companies whose services are based on physical presence, such as aviation or tourism.
Towards the end of the year, thanks to the positive news about vaccines, a reorganization began and a significant movement of capital from technology stocks began in favor of the traditional operators. In 2020, the energy and financial sectors were still the weakest, according to the analysis.
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