Chaos In The Equity Markets | The Corona Correction | Refinitiv

Video Transcription:

  Chaos In The Equity Markets | The Corona Correction | Refinitiv

Welcome to the Corona Correction Series in association with Refinitiv. I'm your host, Roger Hirst. The equity markets have been at the forefront of the market mayhem. This is one of the most dramatic declines in market history, and it's comparable with aspects of both 1987 and the 1929 crashes. I asked Refinitiv's Head of Equity Trading, Phil DeFrancesco, to outline what was happening in the VIX, that's the volatility index, and how the price action would impact market volumes and the performance of active managers. Yeah, with the Coronavirus sending the global equity markets into complete chaos and VIX at levels we haven't really seen since 2008’s financial crisis. You know, this is uncharted territory for a lot of us. The one good thing that's happening in the equity markets is that global trading volume has skyrocketed. In most markets there has been more volume trading in the first two weeks of March than we typically see in a month. So the equity trading volume has been stagnant for let's call it 8 to 10 years, which has really weighed on Wall Street, and it's forced firms such as Deutsche Bank having to make tough decisions to exit the equity trading business. So not only will this help the sell-side trading firms, but this is exactly what the active managers have been waiting for. With low interest rates, sky high volatility and the uncertainty that still surrounds the exact impact on the global economy from COVID-19, this is the time when hedge funds should shine. Hedge funds have been underperforming the broader market for the past few years, so this could really send a much needed charge into this type of investment vehicle. U.S. employment numbers don't come out for another two weeks, and earnings season doesn't technically start for another month, which could be the first time the market gets a real understanding of the true impact of COVID-19, which means a lot of bouncing around and positioning. This will most likely play out all year, with fallout potentially spilling into next year. Listen, we are experiencing something that most of us have never seen in the equity markets and things seem to be changing hour to hour. Phil outlined that whilst the VIX is a gauge of fear, the dislocations in the market also represent a huge uptick in volumes, the various players within the equity space manage down their risk. The March VIX contract expired on Wednesday of this week. U.S. and European equity markets will go through their quarterly expiry on Friday, when the March contracts roll off. While this may help take some of the immediate volatility out of the market, and therefore help alleviate some of the deleveraging pressure, Phil expects the fallout from Coronavirus to last throughout the year and maybe well into 2021. We'll see you tomorrow with another update.