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Blog Posts — April 27, 2020

Lockdown, Partial Lockdown or No Lockdown — and the Impact on Equity Markets

by Diana R. Baechle, PhD

How have local equity markets been impacted by different lockdown regimes? Most countries’ markets have suffered large year-to-date losses, irrespective of lockdown measures, dragged down by the overall market rout, while their risk skyrocketed. But there was one exception—and the dominance of the Pharmaceutical industry in that country and its low beta to the regional market were key to its positive return. And, no, it is not Sweden, which has drawn worldwide attention for its no-lockdown stance!

We investigated nine countries that took one of three different approaches to combat the pandemic:

  • Lockdown: Austria, Denmark, Italy, Spain, UK
  • Partial Lockdown: Germany, US
  • No Lockdown: Japan, Sweden

Italy and Spain have suffered the highest number of human losses per 100,000 inhabitants, with a total death toll as of April 20 of around 40 per 100,000. The UK followed at a distance with 22/100k (although the rate of increase has been rising in the UK), while Sweden’s toll was at 15/100k. The mortality rate in the US (12/100k) was below that of Sweden, but above that of Denmark, Germany and Austria, which all hovered around 5/100k. Japan, which was one of the first countries to record a coronavirus infection, posted a mortality rate of only 0.1/100k.

Source: European Centre for Disease Prevention and Control (ECDC)

The World Health Organization officially declared the coronavirus outbreak a pandemic on March 11, 2020, encouraging countries around the globe to implement public-health measures to contain the virus and mitigate its spread. The “lockdown” measures—which include mandatory and non-mandatory stay-at-home orders, closures of “non-essential” businesses (as defined by each country or state), and bans of events and gatherings—disrupted the lives of hundreds of millions of people worldwide and pummeled the equity markets of most countries.

Italy, Denmark, Spain, Austria and the UK all instituted national lockdowns one after the other in March. In each of those countries, citizens were tightly restricted and only allowed to leave home for essential activities, such as buying food or medicine. Non-essential shops and businesses were closed.

Germany opted for strict social-distancing rules and closed non-essential businesses, but only two states—Bavaria and Saarland—were in lockdown. Schools in Germany have been closed since March 13, and most manufacturing plants remain open.

In the US there is no national-level shutdown. Most state governors imposed stay-at-home orders and shut businesses, but in states with large rural areas and dispersed populations there were no state-mandated restrictions. Some states with previous lockdowns are now preparing for, or have begun, soft reopenings.

Despite being one of the first countries after China to report coronavirus cases, Japan’s death rate is remarkably lower than in most countries. Japan first declared a state of emergency for Tokyo and six prefectures on April 7, which was later expanded to more prefectures, well after most other countries imposed measures. Regional governments can request business closures and social distancing, but the closures are not compulsory.

Sweden’s approach to the pandemic draw considerable attention around the world. Aside from banning gatherings larger than 50 people and visits to nursing homes, Sweden left primary schools, gyms, cafes, bars and restaurants open. Sweden’s government urged its citizens to follow social-distancing rules and encouraged them to work from home and reduce travel, but permitted Swedes to adhere voluntarily to guidelines without government legislation.

The table below summarizes the lockdown criteria in each of the nine countries studied, the measures taken, the start date of restrictions in each country, and the date at which restrictions started to be relaxed.

Countries with strict lockdowns suffered the most, with one exception
Countries with and without strict lockdowns were in a state of economic free fall between late February and late March[1], underscoring the interconnectivity of markets.

Even as most businesses remained open in Sweden, and with more people working from home there than anywhere else in Europe, Sweden’s market return plunged alongside other European markets.

Countries with severe lockdowns—Austria, Italy, Spain—and countries with partial or no lockdowns—Germany and Sweden—went into deep dives after the February 19 market peak, even more so than Europe’s Total Market, suggesting that the markets were expecting an economic disaster no matter what. Austria, Italy and Spain fell the most.

Interestingly, despite going into a lockdown early (second after Italy), Denmark’s plunge was the least steep among European nations, second only to Japan’s.

Most countries’ equity markets hit rock-bottom around the time lockdown restrictions were imposed. Sweden’s dipped to the lowest point at the same time the Global Total Market did on March 20. Japan, on the other hand, reached its year-to-date low on March 13, long before most countries started their quarantine measures and well before they started their own.

The following charts show the year-to-date cumulative returns for each country, and the date when they started imposing lockdown restrictions.

Source: Qontigo

After about a month in various stages of lockdown, Italy, Spain, Austria, Denmark, Germany and the US are now starting to lift some of the restrictions previously imposed to contain the spread of the coronavirus.

Share prices have rebounded over the past four weeks in all nine countries, buoyed by massive government stimulus plans and optimism among investors about the reopening of economies. Denmark and the US have ramped up the most, since bottoming out on March 20, followed by Germany and Sweden. Italy and Spain saw the smallest rebounds so far.

Countries that imposed lockdowns suffered the largest year-to-date market losses, with Austria, Spain and Italy being the hardest hit, despite divergences in deaths per 100,000. Austria posted the largest loss of 34%. However, Denmark bucked the trend, and was the only country among the nine to—surprisingly—post a positive year-to-date cumulative return by April 20.

The US, Sweden and Japan, which had partial or no lockdowns, recorded the smallest year-to-date losses. The US and Sweden outperformed the Global Total Market and Europe Total Market, respectively.

Japan also recorded a smaller loss than the Global Total Market.

Source: Qontigo

Pharmaceuticals and the country’s low beta to the European Market lifted Denmark

Factor return attribution shows that what dominated the poor year-to-date performance of European countries was the 19% fall in the European Market as a whole. The positive contribution of the local markets in Sweden, Germany, Denmark and even Italy offset some of the loss brought about by the decline in the overall European Market, but not enough to turn the benchmarks’ returns positive.

Sweden was the only country where Specific Return had a positive contribution, while Denmark was the only country where Style had a positive contribution.

The Style contribution in Denmark was significant, offsetting more than half of the downturn in the European Market. Denmark’s negative exposure to the Market Sensitivity style factor—that is, Denmark’s low beta relative to the European Market—was the main reason for this positive effect of Style, with the negative exposure to Dividend Yield and Value buoying this positive result.

The Industry contribution to index return was positive only in Germany and Denmark. Health Care, and in particular Pharmaceuticals—which is a key industry in Denmark—was almost entirely responsible for the positive contribution of Industry in Denmark, while in Germany, Information Technology and Materials joined forces with Health Care.

All factors contributed negatively to the index return in Austria, which ended up being the biggest loser.

Losses in the UK, US and Japan were dominated by the fall in the global and local markets, with other contributors to index return having a minimal impact.

In terms of sector contributions, generally, Health Care, Information Technology, and Consumer Staples were the biggest positive contributors in most countries, while Financials, Industrials, Consumer Discretionary and Energy were the largest negative contributors.

Source: Qontigo
Source: Qontigo

Austria superseded Italy as the riskiest country, while Japan remains the least volatile

Expected volatility across the globe soared as markets tanked after the February 19 peak, with benchmark risk rising three-to-five times by April 20, since the beginning of the year. By “risk” we mean the predicted volatility for each index over the next couple of months, as measured by Axioma’s short-horizon fundamental models.

The risk models used are the most local available. The risk forecasts for Austria, Italy, Denmark, Germany, Spain, Sweden and Europe Total Market are based on the European model. The UK forecast is based on the UK model, the US forecast on the US model, the Japan forecast on the Japan model, and the Global Total Market forecast on the Worldwide model.

The coronavirus crisis has reshuffled the relative riskiness of countries. The US started the year as the least volatile country, but then went on to experience the largest surge in risk, followed by Austria, Italy and Spain, the four countries becoming the riskiest of the nine under study.

Source: Qontigo

For countries imposing partial or full lockdowns, risk spiked around the time of the announcement of restrictions, but not enough to change their relative riskiness versus the other countries. The only exception was Austria, which emerged as the riskiest country after March 16—the start of its lockdown measures—surpassing Italy. Austria’s economy is dominated by Financials (36% of the index), and particularly Banks, one of the hardest hit and most volatile sectors in the Eurozone.[2]

Among the countries with partial or no lockdowns, the US became the riskiest. Japan (no lockdown) and Denmark (full lockdown) remained the least volatile countries since February 19.

Source: Qontigo


Since the pandemic started, investors had to parse a flood of health information about the fast-spreading coronavirus, various restrictions imposed by different countries, and the potential impact of these restrictions, which in some cases shuttered entire countries’ economies. All markets, irrespective of their coronavirus-related imposed restrictions, fell precipitously after February 19 until about mid-March.

After a month-long quarantine, countries with various levels of success in tackling the coronavirus outbreak are now starting to scale back on restrictions, including those with some of the most severe lockdowns.

Following massive government stimulus plans, and with the prospect of countries starting to reopen their economies, markets have rebounded in the past four weeks.

Except for Denmark, countries with the most severe lockdowns fared the worst. Austria, Italy, and Spain posted the largest year-to-date losses, while the US and Sweden recorded the smallest losses. In most cases, countries did not have the industry or style exposures that would have helped mitigate some of the losses of the overall market.

Going in, we expected to see Sweden or Japan, with their far less severe restrictions, show a big return difference from other countries. However, the surprise did not come from Sweden or Japan, but rather Denmark.

Lifted by Pharmaceuticals and low beta relative to the European Market, Denmark was the only country in our study to post a year-to-date gain, albeit very small. Denmark was the second country in Europe, after Italy, to announce a lockdown, doing so even before it recorded its first COVID-19 death.

Risk has shot up since the beginning of the year for all countries, regardless of their lockdown regime. Denmark and Japan, which had opposite stances regarding lockdowns, were the least volatile countries, while Austria’s risk climbed above that of Italy, making it the riskiest among the nine countries under study.

Nations around the world have the opportunity to learn from each other as they reopen their economies slowly and in stages, with strict social-distancing rules remaining in place, as fears of resurgence remain on everyone’s mind. The makeup of their local economies, however, may ultimately have the biggest impact.

[1]To assess each country’s performance we used the following indices: STOXX Austria Total Market, STOXX Denmark Total Market, STOXX Germany Total Market, STOXX Italy Total Market, STOXX Japan Total Market, STOXX Spain Total Market, STOXX Sweden Total Market, STOXX UK Total Market, STOXX USA Total Market. We also used STOXX Europe Total Market and STOXX Global Total Market for reference. Index returns were calculated in local currency, while Global Total Market returns were calculated in USD and Europe Total Market returns in EUR.

[2] For more details on the performance and risk of Banks in the Eurozone see