In mid-March, global financial markets looked almost like in the fall of 2008 after the collapse of US investment bank Lehman Brothers or the European debt crisis in 2011. For example, VIX volatility index reached a historical high of 83 points on 16 March. Corporate bond credit spreads widened massively as well. We could also feel an increased stress in the interbank markets.
Fortunately, the key central banks, led by the Fed and the European Central Bank, have made a decisive commitment to helping to stabilize the situation to some extent with their unprecedented asset purchases (QE). Bloomberg Global Financial Conditions Index thus finally moved slightly upwards to the more relaxed financial conditions. It is worth highlighting that the current volume of quantitative easing of the US Fed is so huge that in a single day Fed buys as many assets as in the whole one month during the global financial crisis. Therefore, I dare say that, although the situation has largely stabilized, the overall response of the global financial markets has been relatively weak, especially as regards corporate bond markets. On the other hand, stock markets, of course, experienced a solid growth, with an average gain of 15% since the market bottom on 23 March.
Michal Stupavský
Investment Strategist Conseq Investment Managament, a.s.