Markets bounce back as hope rises

During the second quarter of 2020, the pandemic has put a halt to daily life across the globe, as the virus spread at an alarming speed. The negative impact on economic activity was enormous and unexpected, as restrictions were being imposed to try and combat the virus. Governments and central banks across the world are injecting money in the economy in an attempt to soften the economic damage and instil confidence in financial markets.

They have been successful with the latter, as equities and bonds rallied during the second quarter. Investors shrugged off both the negative economic data and the rising infection rates in some parts of the world. Instead they focused on the reopening of some business activity and the long-term economic impact, which the huge fiscal and monetary measures introduced in recent months, will have on businesses.

Global Equity Markets

The global equities’ market headed for one of the best quarters on hopes that the rising coronavirus cases will be contained while economies and air travel restart. In the final weeks of June, several countries started to relax many restrictions imposed earlier this year. In terms of financial aid, the European Central Bank (ECB) nearly doubled its stimulus programme to €1.35 trillion, translating into a €600 billion increase to help the European economy. The ECB launched a Eurosystem repo facility for central banks to help euro liquidity, available until June 2021.

European equities headed north, as shares recorded the best quarter since 2015. The Euro STOXX 600 Index advanced by nearly 13%. The German DAX almost off-set its previous quarterly decline, as it closed 24% higher. The Eurozone Purchasing Managers’ Index exceeded market expectation in June as it rose to 46.9, as lockdown restrictions were being lifted and further easing planned for the following months.

In the US, equities wrapped up one of the best quarters amid the ongoing virus concerns and trade disputes with China. In addition to the $2 trillion package issued during the first quarter, President Trump signed a $484 billion package of new pandemic aid funds. This measure is aimed at providing new loans for small businesses. Consumer confidence in the US increased and the Dow Jones recorded an 18% quarterly increase – the best performing quarter in 33 years. Similarly, the S&P 500 advanced by 20%, which also translated into the biggest quarterly increase since 1998. Meanwhile, the Nasdaq Composite jumped by 31%.

Meanwhile the fear gauge or the volatility index declined heavily, as investor sentiment improved.

Sovereign Bonds and Credit

In the sovereign debt market, movements in bond yields were more or less stable on the quarter. However, throughout the last three months, European yields were somewhat volatile as investors reacted to both economic data and equity market movements. On the other hand, the yield on the US 10-year Treasury was more stable. The latter ended the quarter slightly lower at 0.65%, down from 0.72% at the end of March. The same maturity UK Gilt declined by more than half as it closed at 0.17%, while the German 10-year Bund ended the second quarter with a negative yield of 0.5%.

In the periphery, Italy’s 10-year bond yield decreased to 1.3%, while Spain’s lost 21 basis points as it ended the quarter at just under 0.5%.

Investment grade bonds denominated in both Euro and USD registered gains across all sectors, as investors expect low interest rates for longer. In addition, central banks’ buying of corporate bonds sent investors flocking in the bond market, following the sell-off witnessed in February and March across both investment grade and high yield bonds. The latter also had a very positive quarter, as investors seek attractive interest income opportunities.

Local Market

The local equity market gained nearly 8%. Despite air travel being banned for the whole quarter, Malta International Airport plc shares recouped some lost ground despite the tourism sector being one of the hardest hit industries. International Hotel Investments plc did not recover during the second quarter, as the virus thwarted travellers’ plans and hence cancelled their itinerary. Most large caps, including all four equities in the banking industry closed in the red. Meanwhile, one of the top performers was RS2 Software plc, whereby one of its subsidiaries reached a major agreement with one of the largest acquirers in the US.

On the whole, yields on local corporate bonds declined, as investors revised their bid prices higher. On the other hand, local sovereign bonds traded lower, as yields headed north.


The British Pound slumped to a three-month low against the Euro as Brexit talks intensified and consumers slashed spending, as the Eurozone’s economic recovery is ahead of the UK. Conversely, the Euro managed to recover its previous quarter’s decline, as it advanced by 1.8% to $1.1233 against the US Dollar.

The second quarter will surely be remembered for the strong comeback witnessed in equities, investment grade bonds and high yield bonds, following the debacle during the first three months of the year. Unprecedented stimulus and the reopening of some parts of the world economy helped stocks to surge, despite the lack of clarity about the future and mixed economic data. Yet, as some of my colleagues wrote in recent weeks, one needs to distinguish between a recovery in economic figures and a recovery in financial markets. Evidently the latter try to anticipate the former.

Lianne Zahra is a Trader at Jesmond Mizzi Financial Advisors Limited. This article does not intend to give investment advice and the contents therein should not be construed as such. The Company is licensed to conduct investment services by the MFSA and is a Member of the Malta Stock Exchange and a member of the Atlas Group. The directors or related parties, including the company, and their clients are likely to have an interest in securities mentioned in this article. Investors should remember that past performance is no guide to future performance and that the value of investments may go down as well as up. For further information contact Jesmond Mizzi Financial Advisors Limited of 67, Level 3, South Street, Valletta, on Tel: 2122 4410, or email [email protected]