02 / 20


The continuing spread of the corona virus (COVID-19) outside China led to considerable uncertainty on the stock markets in February. First large companies such as Apple and Microsoft warned of negative effects due to lower demand and production difficulties caused by COVID-19. In fact, this is Apple's first profit warning since 2002, with economic data still lagging behind the impact of the virus, and the data released this month in the USA - apart from a few disappointments - testify to a healthy economy. The housing and labor market surprised on the upside, but the industrial and service sector survey results were below analysts' expectations. In fact, the US services sector fell far short of the survey results, suggesting a contraction. In Europe, on the other hand, the first survey results on an aggregated level for both sectors (services and industry) were surprisingly positive. COVID-19 is likely to have a more pronounced impact on the coming first-quarter data, which the equity and bond markets have already anticipated. In China, on the other hand, the situation regarding viral diseases is easing and some production facilities are already being ramped up again. Starbucks, for example, announced that 85% of its coffee houses in China have reopened.

Equity markets

February began promisingly for equities. After temporary gains of 6% to 8%, global equity indices fell sharply due to the spread of the virus, ending the month well into negative territory. The losses of the main markets ranged from -5% to -11% (in CHF). Surprisingly, the Chinese stock markets, which benefited from massive monetary and fiscal policy measures, proved resistant to the sell-off. The Chinese are doing everything possible to avoid fundamental risks (recession, depression or bankruptcy wave). To this end, the central bank is supporting the market with interest rate cuts, capital relief or direct support for airlines to help the economic recovery. As a result, the nervousness on the financial markets has risen sharply worldwide. The VIX risk barometer reached levels last seen in the major correction in 2018 (see FOCUS). The VIX curve also turned into an inversion, which was often a harbinger of an impending stock market recovery and a final sign of panic.

Interest rates

In the USA, interest rates fell to new record lows. Not so in Europe, the 10-year German Bund or the Swiss Confederation are both still well above last year's record lows. Towards the end of the month, the US yield curve rose again significantly, reflecting market expectations of additional stimuli to the US Federal Reserve. The spread of high-yield bonds also reached levels within a short period of time, the last of which was reached in September 2019. The US Federal Reserve will meet on March 18 and the market now expects at least one interest rate cut.

Currencies & Commodities

Despite the massive uncertainties, precious metals such as gold (-0.2%) or silver, which are always sought after in uncertainties, were unable to post gains (-7.6%). Energy sources such as oil and gas lost significant value. Brent Crude Oil lost more than 13%. Palladium gained over 14% due to supply bottlenecks. The metal is the silent winner of the ongoing green revolution and is used in automotive catalytic converters.


We still do not anticipate the worst-case scenario from COVID-19, but we are alarmed about the extent of the market distortions. The economic slowdown is likely to be a temporary phenomenon that will manifest itself mainly in the first and second quarters, provided that containment is achieved and an epidemic can be averted. According to current data on new infections, the situation is easing, particularly in China, which suggests that the virus is already largely under control at its source. Manufacturing production and consumption in China should thus gradually return to normal and important supply chains should gradually be relieved. In view of this, it is not presumptuous to assume that western countries cannot contain the virus just as successfully. With the loosening measures initiated by the Chinese central bank (PBOC), the possible further measures by European countries (fiscal programs) and further interest rate cuts by the US Federal Reserve implied by the market, ideal conditions could be created for a continuation of the equity boom if the corona infection subsides. We are not assuming a crash scenario, but we are aware that the uncertainty in our outlook is currently relatively high. For this reason, we are gradually making our portfolios more defensive until there is more visibility on the outlook.


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