The countries with the highest COVID-19 case counts generally have had the worst stock market performance this year. But there are two notable exceptions ... you probably know one of them.
In a historically bad year for the global economy, thanks to the worst pandemic in more than a century, global stock market performance has mostly lagged. But not as much as you might expect.
The Global Dow, an index composed of 150 of the largest blue-chip stocks from around the world, is up nearly 4% for the year. For perspective, the global index was actually down in 2018, a relatively uneventful year, at least when compared to 2020 (what year isn’t?).
Yet, many stock markets around the world have struggled. And as a general rule of thumb, the higher number of coronavirus cases and deaths a country has had, the worse their stock market has performed this year.
To wit: the benchmark stock indexes in the countries with the 10 highest case counts since the pandemic began have suffered an average year-to-date loss of -9.3%. That includes a 26.9% loss in Italy’s FTSE MIB index (Italy has the eighth-most coronavirus cases of any nation to date); a 23.9% decline in Colombia’s COLCAP index (Colombia has the 10th-most cases); a 16.9% drop-off in the London Stock Exchange (the United Kingdom ranks seventh); and a 15.4% pullback in Spain’s benchmark IBEX 35 (Spain has the sixth-most cases).
Now, let’s examine the stock market performance among the countries that have handled COVID-19 comparatively well.
Japan, which has had fewer COVID cases than Kansas, has seen a 13.2% surge in its previously long-dormant Nikkei index.
South Korea, the 28th-largest nation in the world with only the 94th-highest virus case count, has seen a 20% jump in its benchmark KOSPI index.
Chinese stocks, by virtue of China’s low case count despite being COVID-19’s origin point nearly a year ago (though their case count likely isn’t as low as they say it is), are up 13.2% in 2020.
And then there’s New Zealand, perhaps the most famous success story in the world in terms of stopping the coronavirus dead in its tracks. The island nation of 5 million people has had a mere 2,059 total cases as of this writing – less than half Vermont’s U.S.-low tally. As a result, the New Zealand Stock Exchange is up 10.8% this year.
2 Countries Defying the Correlation between Global Stock Market Performance and COVID Case Counts
Clearly, there is an inverse relationship between a country’s stock market returns and its COVID case count. But there are two very notable exceptions: India and the U.S. They are the two countries with the highest case counts, accounting for more than a third of the global total by themselves. And yet, the S&P 500 is up more than 12% this year, and India’s Bombay Stock Exchange has risen nearly 7%.
How can that be? Here are a couple theories.
For starters, both stock markets came into 2020 with tons of momentum. The S&P was up more than 28% last year, its best annual performance since 2013; India stocks entered 2020 on the heels of four straight up years, including a 14% bump in 2019. To paraphrase our Tim Lutts, Cabot’s Chief Investment Strategist: Trends on Wall Street tend to last longer than people think.
Second, all stock markets are forward looking. They tend to look out six to nine months in the future. And with a vaccine arriving this month, investors are seeing an end to this nightmare sometime in 2021. Thus, the two countries that have combined for 36% of the world’s COVID-19 cases to date, also have the most to gain from a vaccine, especially considering they are two of the world’s three most populous nations.
At present, things look awfully bleak in the U.S. and India. But six to nine months from now, global investors see tremendous opportunity – for improved health, economic recovery, and a return to something close to business as usual.