European and global stock markets have rallied since October. For many investors this is great news, especially after a lackluster year. However, we know that stock markets are strongly speculative. Is this economic recovery real? Here is a closer look.
A remarkable November
November 2020 was a record-breaking month for international stock markets. Global equities enjoyed a 13% rise in a single month. This represented an increase of more than EUR 5.7 billion in stock value. Nikkei ended the month at an unprecedented 15% higher. Asian markets recorded gains to the tune of 10%. However, the European stock markets truly led the way.
Resurgent European Indices
The Stoxx Europe 600 Index gained 15% in November. This was its highest recorded monthly gain in more than a decade. Stocks of companies in the banking, insurance, automobile, and oil sectors were responsible for most of this surge. Bloomberg reported that equity markets in Spain, Italy, and Greece gained more than 20%. Greece’s Athex market rose by 29%, the Spanish IBEX by 27%, and Italy’s FTSE MIB by 25%. Other major European stock indices were not far behind. Belgium (BEL 20), Poland (WIG 20), France (CAC40), Cyprus (CSE) – all gained 22% in November. Put together, the values of European stocks increased by nearly EUR 1.4 trillion. Millions of migrant workers live and work in Italy and other EU countries. They support their families with remittances sent via trusted services such as the Ria Money Transfer App. Rising markets and economic recovery are great news. However, it remains to be seen if the effects will last.
Behind the surge
Multiple factors colluded to cause this sudden rise in markets. It started in early November with Joe Biden’s election victory. The event assuaged fears of political instability on American soil. Being inherently sentimental, the world markets collectively rejoiced. Shortly afterwards, Moderna and Pfizer gave positive updates on their vaccine trials. This was followed by the news of successful tests of the Astra-Oxford vaccine in late November. The markets were already bullish from the Biden news. The fresh hope of a viable vaccine in the near future sent the markets soaring to new heights.
Central Bank Stimulus
Much of the economic uncertainly in Europe was alleviated by the promise of cheap loans and the prospect of free money in the form of stimuli worth hundreds of billions of Euros from the European Central Bank (ECB). Freebies saw European equity markets pricking up momentum throughout November and well into December. Rabobank’s Head of Macro Strategy Elwin De Groot remarked how the equity market “still remained very much supported by liquidity from the European Central Bank.” The initial concerns of spiking COVID-19 cases were simply brushed aside by the tide of free money. Italy’s cabinet undersecretary Riccardo Fraccaro further urged the European Central Bank to consider wiping out the government debt to help member nations recover and restructure.
In the medium to long term, bullish markets can lead to overall increase in investments and spending. Theoretically this can lead to employment generation and job creation. InterNations reported in 2019 that there will be close to 200,000 job vacancies in Italy in the next few years. If the present economic recovery is real, it can add even larger numbers of jobs than forecasted.
After a staggering November, global equities markets have been losing some of their flair in December. The emergence of the new COVID-19 strains in parts of the UK is the cause. Stoxx Europe 600 reacted to the news immediately, and fell by 2.3%. Uncertainty about the efficacy of the COVID-19 vaccines against this new strain can drive further speculation.
WHO scientists believe that the vaccines currently under development should be effective against the new strains as well. Various medical researchers and public-health officials agree with this estimation. WSJ predicted that “the economic outlook for one or more years is unlikely to change much, limiting the extent of the market fallout.” In other words the fallout will be minimal. What we do know for sure is that stock markets are overly sensitive to speculation. They don’t give a full representation of the state of the economy. A more holistic assessment of the economic health of nations (and the world) demands that we add more variables to our evaluation.
About the author:
Hemant G is a contributing writer at Sparkwebs LLC, a Digital and Content Marketing Agency. When he’s not writing, he loves to travel, scuba dive, and watch documentaries.