After a promising start to the month, with concerns about coronavirus possibly expected to fade, the emergence of new outbreaks outside China weighed heavily on the financial markets. The World Health Organization announced that it had increased its risk/impact assessment to its highest level, roiling the markets and sending them to their biggest weekly decline since the 2007 financial crisis. The price of oil fell again, and the Canadian dollar depreciated against the major foreign currencies.
In this context, many investors found refuge in bonds, thereby contributing to the general decline in yields. Despite the adverse effect of widening corporate credit spreads, the bond market performed positively during the period. As for equities, no sector was spared. Information Technology limited the loss to slightly more than -2%, but Health Care recorded by far the worst performance, with a return of -18.2%. The Canadian stock market returned -5.9% in February, as measured by the MSCI Canada Index.
Once again, COVID-19 had a greater impact on the U.S. stock market, which returned -8.2% in local currency, as measured by the MSCI USA Index. Our currency’s weakness against the greenback offset some of the loss: in Canadian dollars, it was -6.8% for the month. No sector contributed positively to the performance, and those most affected were Energy, Finance and Utilities.
Europe’s situation was similar to that of the United States. Energy was the sector with the worst performance, and the broad market, as measured by the MSCI Europe Index, returned -8.0%. With a negligible currency effect, the return in Canadian dollars was -7.9%. Our currency’s strength against the pound sterling offset its weakness against the euro and the Swiss franc.
Despite the decline in the number of new coronavirus cases in China, the Asian markets were also hit hard by the turn of events. In local currencies, the return on the benchmark MSCI Asia Pacific Index was -5.4%. The sharp increase in cases in South Korea certainly did not help this result. All sectors subtracted value, including Energy, which fell the most. Even so, the relative weakness of the Canadian dollar against the basket of Asian currencies in the index limited the loss, which was -4.6% for the region.
Emerging markets, which are generally more volatile, surprised us last month by posting the best relative performance. In local currencies, their return was -3.8%, as measured by the MSCI Emerging Markets Index. Apart from Health Care, all sectors contributed negatively to the total return. The big losers were Energy and Utilities. Currency fluctuations had no impact on the performance, which was unchanged in Canadian dollars at -3.8%.
Sources: Bank of Canada and MSCI Inc.
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