Pandemic fear hits stock markets

After a weak start to the week, all indices fell on Wednesday. The German stock index Dax, for example, lost more than 4%, while counterparts such as the EuroStoxx 50 or the S&P 500 fared only slightly better with declines of 3.5 %. For the US stock markets, it was the worst day since June.

Asian stock markets are less nervous. Despite weak performances from Europe and America, the Japanese Nikkei 225 managed to limit its losses to 0.4% by the end of trading on Thursday. European indices opened slightly firmer today, putting an end to the decline for the time being.

Restrictions, again

The change in sentiment was triggered by concerns about rapidly rising Covid-19 infections. A second wave had been expected. However, many experts were surprised at how quickly the figures have now risen, especially in Europe. Many countries have therefore been forced to reintroduce restrictive measures to control the spread of the virus.

In Germany, for example, public life will again be severely restricted from 2 November onwards. Restaurants will have to remain closed, as will theatres, operas and concert halls. Professional sport must take place in front of empty stands. Amateur sport will be completely closed, to name but a few measures. Public life will also be restricted in Switzerland, and France will take harsh measures too. However, there is one important difference to the lockdown in spring: the measures are more differentiated.

Nevertheless, we assume that uncertainty in markets will remain high. It remains to be seen how effective the new corona measures will be and how quickly the second wave can be stopped.

Investors' nerves are also strained by the race for the US presidency. Even if polls show that Democratic challenger Joe Biden seems to be comfortably in the lead, incumbent Donald Trump has recently been able to gain ground in states that are particularly important for the elections, such as Florida. Due to the large number of votes cast by postal vote this time, the result could be longer than usual. We have recently described this scenario in our "News from the Financial Markets".

Stick to portfolio strategy

Against this backdrop, a robust portfolio composition remains the be-all and end-all. We therefore recommend, even in times of increasing uncertainty, investors should continue to stick to their long-term portfolio strategy and, for example, use risk-minimising, systematic approaches to stock selection.

Such approaches help to ensure that the portfolio is less affected by weak markets, as we have seen in recent days. At the same time, they allow to benefit from the better long-term return potential of equities compared with government bonds, for example. In addition, in a low interest rate environment, broad diversification across alternative asset classes is important to make the portfolio resilient. In our view, gold and insurance-linked securities are particularly suitable for this purpose.

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