There are many questions we want answered each time the country is plunged into another lockdown, and one question investors might be asking is how these lockdowns affect the share market.
There is no doubt that there are multiple factors at work, but it seems that confining people to their homes with little to do results in increased share market trading.
This is a reflection of the ease with which transactions can be placed, thanks to new technology like phone apps offering low brokerage and the chance to invest small amounts of money. Additionally, with other forms of risk-based entertainment such as sports gambling and poker machines off-limits, people turn to the markets. Investors also take heart from the increased levels of government spending that occurs to support the economy during the lockdown period.
We looked at how the NZX50 Gross Index performed during the major lockdowns that have afflicted New Zealand in the past 18 months (early 2020 to mid-2021). We define a lockdown as the period between a Level 2, 3 or 4 alert being announced and when it is downgraded to a Level 1 alert for the whole country.
The first lockdown lasted from 25th March to 8th June 2020. During this time, the index rose by 27% and trading volumes were up an impressive 48% on the same period in 2019.
The second one went from 12th August to 7th October 2020. This time the market rose 3% and trading volumes were 10% higher.
The third one only lasted about a week in mid-February 2021 and in that month the market didn’t move despite volumes being up 4% on last year.
And at the time of writing, we are in lockdown number four, which started on 17th August 2021. In the week since then, the market has lifted a very decent 4%.
This suggests that lockdowns play a meaningful part in lifting the markets and investors should keep this in mind for the lockdowns that are likely to occur in the future.
Interested in learning more? Take a look at our other Stockfox articles and resources.