June 15, 2020
|These might feel like circumstances without precedent. And nowhere is this clearer than in the behaviour of the stock market, which can become a barometer of human emotion. Below is an article looking at the current stock market behaviour compared to some of the more memorable market crashes in recent times, with a few hints at what may lie ahead.
The Aprio Investor Relations team have also put together a few lessons learnt from COVID-19 so far.
An ill-supported communication strategy during the good times will bite hard during a crisis.
Consistency is the key to entrenching confidence and earning support. Reaching out to stakeholders when you’ve been quiet before will do very little in terms of building trust and credibility. To this end, a well-resourced and carefully thought-through investor communication strategy that is consistently applied in the good times will yield a handsome return in times of crisis. Contact Aprio IR to review and enhance your IR programme.
Accessibility outweighs numerical guidance.
Remain accessible, even if you don’t have all the answers. Accessibility allows dual-pronged communication and will assist in understanding investors’ issues and how they’re navigating the situation from a risk-allocation perspective. Similarly, they may be well-placed to provide insight on global best practice, as they may be privy to markets that have progressed in terms of managing the crisis.
When the situation remains fluid in terms of the impact, consider sensitivities.
It is natural that given the speed with which the COVID-19 situation is developing there is uncertainty around its ultimate impact. Consequently, shareholders and investors don’t expect precise guidance on the overall impact on financial and operating performance, with many corporates having withdrawn guidance. Consider assisting the market to understand the impact without providing hard guidance. For example, you could communicate the percentage of costs exposed to foreign exchange volatility, export-related earnings, the average cost of sustaining closed operations, or guidance on cash-preservation initiatives – even if the impact of these are difficult to quantify exactly.
Governments the world over are quickly intervening with aid packages and introducing regulation to help implement lockdown measures. The impact of these may require some analysis and understanding. Be transparent if their impact on the business is unclear. At the same time, you might have a better understanding of the impact of developments on your business than the market does. Stay close to market participants in order to identify misperceptions and address them in line with listing requirements.
Do not attempt to manage the share price.
Market volatility can result in significant absolute share-price declines. It is tempting for management teams to direct their communications to help stave off the decline or recover the share price. Focus on communicating underlying fundamentals and on aspects within the company’s control. As shown in the attached, markets recover. To this end, the smart money will be looking for entry opportunities for well-positioned, fundamentally sound businesses.
It is important to remain alert to changing practices and engagement preferences from investors.
Sustaining engagement – in whatever format – in a time of crisis is crucial. Webcasts and conferencing are being well-received by investors, and their use is expected to persist.
Although technology is a worthy substitute, there is real value in face-to-face engagement.
The above notwithstanding, face-to-face engagement provides a dynamic that cannot easily be replicated on an online platform. When we return to some form of normality of operation, remember that there is value in body language and facial expressions, which enrich the depth of engagement – especially when the conversation is not disrupted by a technology glitch or one person talking over another.
There is a significant step-change taking place in the importance that investors and society attach to companies’ role in society. Doing the right thing and being seen to do the right thing in terms of ESG (Environmental, Social and Governance) have important implications for your corporate brand.
When compared with other market crashes, this has had a greater and more widespread humanitarian impact. To this end, although ESG was already gaining traction before COVID-19, investors are scrutinising ESG aspects more closely than ever before and placing a heightened focus on actions that support them. The most pronounced of these actions have been care for the health and wellbeing of employees, contributions to humanitarian initiatives, the deferral of dividends (although share prices are responding adversely to these decisions), and the forfeiture of executive salary and board fees.
19 Oct 1987The Dow Jones Industrial Average (DJIA) fell 508 points (22.6%), one of the largest one-day drops in history. All the major world markets experienced similar declines that October.
10 Mar 2000The dot-com bubble was caused by excessive speculation in internet-related companies in the late 1990s. From its March 2000 peak, The Nasdaq Composite index fell 78% by October 2002, giving up all its gains during the bubble.
|Global Financial Crisis -16 Sep 2008
Failures of large financial institutions in the US, largely due to over-exposure to subprime loans, rapidly devolved into a global crisis resulting in several bank failures and sharp reductions in the value of worldwide equities.
24 Feb 2020The 2020 stock market crash was caused by a coronavirus pandemic, one of the most impactful pandemics since the Spanish flu in 1918. Measures to curb the spread of COVID-19 resulted in a global economic shutdown
The various periods have been overlaid over each other on the graphs below and the stock market indices re-indexed to start at 100 around the trigger point of the various crashes. We can then compare the depth and duration of the crashes, as well as the recovery. The time period chosen was two years (104 weeks) following the crash and about two months (10 weeks) prior, to see how the events played out relative to each other.
Lull or double-dip?
Road to recovery
U- V- or W-shape recovery
Dot.com bubble was different
|Whenever stock markets crash – and this time it’s no different – a longer-term view, reflecting on strategy and purpose, is the appropriate one. Armed with relevant information and perspective, one can more easily navigate uncharted waters. We hope that with this article we have contributed to your decision making process.
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