COVID-19 and Financial markets impact of both

The COVID-19 pandemic

The covid-19:It is not only affecting people’s daily lives and the global economy but is also causing shock waves in the financial markets. We’ve seen a decline in the stock market that hasn’t happened in a generation, and that’s just the beginning.

In this webinar, Karl Schmedders, professor of IMD Finance, discusses the current state of global financial markets and tries to provide perspective in response to recent policies.

But this expert on computer economics and the effect of external factors on finance is not as optimistic as the others. While the latest comments on the economic impact of the coronavirus crisis suggest the consequences will be severe but short-lived, he thinks the recovery path will take much longer than expected.

Professor Schmedders investigates the U-shaped economic model that he visualizes. After the current sharp drop, this indicates that a fairly flat bottom will follow, leading to a slow recovery with a low slope.

Financial risk and country risk

Although the coronavirus has put Europe and the United States in a virtual blockade, financial economists, credit rating agencies and land risk experts are struggling to reorganize their ratings in the face of unprecedented geo-economic challenges posed by the crisis. Mr. Nicolas Firzli, director of the World Pensions Board (WPC) and member of the advisory board of the World Bank’s Global Infrastructure Fund, calls it “the greatest financial crisis and says it causes many financial problems and financially suppresses geopolitical dysfunctions.”. :

So far, the only European countries forced to implement short-selling bans are Italy, Spain, and France: three of the four largest economies in the weakened European Union.” He believes that the financial vulnerability of Madrid, Milan, and Paris is due to a geo-economic reality that is often underestimated and could emerge in the coming days. By OECD standards, Spain, Italy, and France have very weak pension capital bases. Their combined pension assets are more than 15 times smaller than in jurisdictions such as the United Kingdom or Australia. In times of acute crisis, such as today, there is no rich liquidity traded by buyers of stocks and shares in their financial markets. As a result, their national economies will suffer and their political sovereignty could be seriously eroded.

In many countries, companies are heavily indebted and are currently vulnerable to deteriorating economic and market conditions. Over a long period of soft monetary policy, low borrowing costs have contributed to the unprecedented issuance of corporate debt. As a result, corporate debt is very high in many G20 countries and credit growth in the US and Europe has offset the slowdown in corporate debt financing (Figure 2). Many companies have used this debt to pay dividends and buy back shares, increasing leverage, leaving them vulnerable to a sharp decline in corporate profit (Figure 3). In addition, lower-rated credits in the form of BBB bonds, non-investment grade bonds, and leveraged loans (Figure 3) rose to high levels. Like the equity loan, it is distributed through the financial system to various investors including insurance companies, pension funds, and small investment funds.

Political Considerations

A swift and comprehensive political program to protect the solvency of businesses and households can be supported by several pillars:

Expand central bank liquidity support

Many OECD central banks have taken steps to offer additional monetary policy adjustments to provide sufficient liquidity to ensure the smooth functioning of the markets. Other actions can occur:

• Central banks should carefully consider the terms of their programs to ensure that borrowers with serious liquidity problems have the necessary liquidity. Central bank policy holds investment-grade bonds as collateral for operations, quantitative easing programs, and even crisis structures. A significant portion of the company’s assets is not investment grade or BBB, which is vulnerable to downgrading to non-investment grade under adverse operating conditions. Therefore, central banks need to think about how to adjust their policies in this crisis context. Adequate policy

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