Impact Of Covid 19 On FTSE 100 Market Case Study

Introduction of Impact Of Covid 19 On FTSE 100 Market Case Study

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The literature review is based on the effect of the covid-19 on the “impact of the COVID-19 on the FTSE market” in the UK. Here, the discussion is made on the concept of the Covid -19 and FTSE 100 in the UK and its market position in the UK. The impact of covid-19 on the different volatility of the stock market in the UK. The uses of the different theories and models may help to mitigate the issues that occurred in the market due to covid. The theoretical concept of the “Efficient Market Hypothesis,” “Modern portfolio theory,” and “Prospect theory” will suggest choosing a better mix of low risk. These concepts may help in the future growth of FTSE 100 in the UK.

1. Concept of the covid-19 and FTSE 100 in the UK

 FTSE 100 in 2020

(source: Bbc, 2020)

The factors of the covid19 against the FTSE-100 in 2020, reflect on the business of the UK and the deep recession on the corporate profit, employment, and dividends (Bbc, 2020). The mid-cap FTSE 250 index, may consider a Brexit barometer in the sentiment that rose by 0.1%. The FTSE 100 has recorded the best year since 2016, in the FTSE 100 index has been falling by 14.3% over the year 2020 (Reuters, 2020). This makes a worse performance since 2008, due to slumped 31.3%. On the other hand, the poor performance of the blue-chip index was covered since the pandemic was lower than the current day. The Blue chip FTSE rate rose by 0.1% (0803) GMT, which was struggling to break the previous 10-month high hit (Reuters, 2020). Ashted Groups, an equipment rental company, was made the best potissio9n in the way of performance of FTSE 100 stock. It has been relayed by 73% after the revenue of the company was boosted up to the economic rebound. Furthermore, London lagged some major European indices, with the FTSE MIB of Italy up by 23%. On the other hand, the Oil prices have rebounded by 50% during 2021, which has been lifted by caution, an increase in production, and higher demand. Moreover, the prices of Gold in the UK dropped by 4% in the respect of the higher interest rates which was dampening the assets' appeal that provide income (theGuardian, 2020). Despite this, the recovery of the year in the FTSE 100 sector in the UK may be still below 6.5% at the peak of 7903 points. This was set in the year 2018, May, while the market in the UK, US, French, and German hit the previous record in 2020. The exposure of the pandemic impacted the UK market which closed down by 3.46% or 266 points in the index of FTSE 100 (Theguardian, 2020). Furthermore, the other sector was also affected due to these covid-19 in the UK. The Whitebread (-8.7%)and Hotel chain operatorsin the sector of InterContinental (-9%)were the top faller in the UK. Furthermore, the different sectors related to Standard Chartered bank (-8.9%) and Conference groups Informa (-9%) also faced a larger quantity of falls in the UK market of UK (Theguardian, 2020). 

2. Theoretical Framework

Efficient Market Hypothesis

 Efficient market hypothesis theory

(source: Bbc, 2020)

The method of “Efficient Market Hypothesis” in the market of FTSE 100 UK, will examine the weak form of the efficiency. The seasoned investors and various fund managers will constantly take action on the basis of these types of theories to protect their investment portfolio. These will help at the time of the post-investment in the UK market FTSE 100. The comparison between FTSE 100 and US equivalent may show that the FTSE 100 falls sharply during the period of covid (Bbc, 2020). This means that the movement of the cash has happened on the risky markets that may move to safer places. The aim of the theory is to control the “Severe Acute Respiratory Syndrome (SARS)” that outbreak during the pandemic. Therefore, the investors in the market in the UK will improve and manage their investment to get the best return rate of the investment. 

Modern portfolio theory

 UK FTSE 100 price index

(Source: Wolfstreet, 2022)

There may be a higher risk at the time of the investment in the market with the stocks and shares. The period of covid-19 is the higher risk time period for the investment in the market (Realized, 2021). The “Modern Portfolio Theory (MPT)” is the type of theory that will help to analyze the risk of individual securities. The main advantages of the use of MPT in the sector of the investment of stock in the UK FTSE 100. The use of these types of the theory by the investors in the market FTSE 100, after the pandemic, will reduce the diversification of the portfolios. According to (Wolfstreet, 2022), the UK FTSE 100 price index dropped by 3.5% and 6.7% in the year 2020 to 6987. The above figure 3 shows that the index has fell by 10% from the all - time high in 2018. On the other hand, in the UK market from the last 22 years ago, there may have been a high Bubble that occurred during the downfall of the market (Wolfstreet, 2022). Furthermore, in the year 2020, there was also a bubble that occurred in the market. The “Modern Portfolio Theory (MPT)” will provide a clear view of the investment in the different business sectors in the UK, to the investment. These will potentially generate the fare view on the steady rates of return.

Prospect theory

 FTSE 100 market in 2021

(source: Ii, 2022)

The prospect theory will help to track problems, usually the investment, the different markets choosing the assets. There may be a different type of optimal portfolio that is very difficult to rebalance and manage (Britannica, 2022). This theory is also known as “loss aversion theory”, which helps to make decisions under the condition of various types of risk. This theory will analyze the form of efficiency in the sector of “Financial Times Stock Exchange 100”. These will improve the comfort opportunity related primarily to gaining the risk-seeking in the realm of the different losses due to covid-19 (Britannica, 2022). These elements will recognize the most robust finding in the model, these recognize the diverse theory in the mind of the investors. Furthermore, the investment of the investors in the different mind respects may examine the robustness of the different strategic options on the UK’s FTSE 100 index. According to the data of the FTSE 100 index on the trade of LIFE, that obtained the settlement of the prices (Citeseerx, 2022). These may help to the settlement and are associated with the underlying index values.

3. Impact of covid 19 on FTSE 100

The financial disruptions created by covid19 have lowered the UK equity market. This had a major issue in the country and had a substantial negative impact as well. It is observed that the pandemic has not only affected the operation of equity but also showed a comparatively slower growth in the economy. Although the country has seen a 60% growth in the e-commerce market, the downfall in the equity operation has extensively affected the GDP of the UK (Semanticscholar, 2020). The profit margin in the equity is affected and it has increased the volatility of the stock market in the UK. The report suggests that the price index in the early weeks in the pandemic period was quite steady. It showed a sharp and substantial decline in the weeks that followed the announcement of the lockdown in countries all over the world. And then the price index experienced its lowest downfall during the week of the announcement in social distancing in the UK. The equity market showed a decline of 35% in the month of January (econstor, 2021). However, when the announcement of ending the lockdown was made across the world as well as in the UK, this decline in shares was reversed with the overall decline in the share index in the FTSE 100 21% over that period.

 FTSE 100 position in 2020

(Source: Statista, 2020)

In the escalating crisis surrounded by the global recession due to the pandemic, the FTSE 100 faced the second largest crash in history. In the year 2020,23rf of March, it showed the lowest value of the year with 49993.89. As the pandemic continued, the FTSE 100 index continued to make a recovery from the crest fall between late March 2020 to early June 2020 (business perspectives 2021).

The percentage change in prices of shares over the period of 2nd January to 20th May of the year 2020 remained stable. According to the author (Dias et al, 2020) the shares of Tesco fell by 3% during the pandemic as the overall performance of FTSE 100 was hit hard. The market shares of the research and biotech industries excelled in their performance in the market and in a certain period of time dominated the market with a huge number of shares in equity market of FTSE 100(researchgate 2020). The shares of medical firms outperform the market by an increased share value of 6% in comparison to the decline faced by the overall downfall in the FTSE 100 of 21% as reported.

4. Challenges faced by FTSE 100 Market

The shockwave of the Covid 19 had spanked the share prices of the leading stock exchange of Britain by 25% after the biggest drop in 1987. The stocks in the 100 Index had rallied during the period as the world economy has been followed by unpredictable measures for the mitigation of the impact of the pandemic. The FTSE index has been running by 2000 points below as it was started early at the beginning of the year. The biggest crash has been recorded regarding the early position of the index as it was at the all-time high at 7542 at the beginning of the year (The guardian, 2020). At the same time, the biggest components of the FTSE index the Oil sectors, airline sectors, Travel Firms, and Banks have been slashed by the pandemic, and the values of these industries along with the companies also reduced (Khan et al. 2020). According to several data sources, the share prices of the travel companies have been reduced by almost 42% as the entire world has been quarantined and the travelers have also needed to protect themself rather than traveling. At the same time, the value of the oil industry also reduced by 65% as the price of the oil barrels has been increased by $22 and the demand for the oil has also been reduced as the global economy is headed to recession. On the other hand, the banks, airlines, and travel companies have been suffering from the biggest losses because of the Covid, and the main reason for the recession is the lower demand. The share values of the airlines and the travel companies have been reduced by 75% and the value of British Airlines which is the key element of the London Stock Exchange reduced by 67%. Therefore, the biggest challenges the index faced can be stated as under.

 Price chart of FTSE 100

(Source: statista.com 2022)

Price Falling and the Recovery

The main challenge for the FTSE 100 index is the second-largest crash in the prices of the index. The prices of the index have been recorded as 5671 at the end of march 2020 which was traveling around 7500 at the beginning of the year. Therefore, the falling of the prices provided the challenges for the recovery of the index to its previous nature.

Investors

According to the current market position and the world economy the investors will not be able to invest in the down trends market. The redirection of the share index will be next to impossible as there will be no money for the regulation of the shares of the listed companies (He et al. 2020). Moreover, the biggest components of the FTSE index have been averagely slashed by 50 %-60% as a result the recovery can be hung.

Valuation and Recession

According to the market instability and the market position, the valuation of the listed companies can also be reduced because of the pandemic. Therefore, the companies may also lose their market capture and position.

  Price index of FTSE 100

(Source: The guardian, 2020)

5. FTSE Future growth and impact of oil and gas on it

 U.K. (FTSE) Oil and Gas Industry Analysis, 2022

(source: Simplywall, 2022) 

The earnings of companies in the sector of the Oil and gas industry in the UK have grown by 5.2% per year from the analysis of the year 2020. The revenues of the companies will be increased by 14% per year. According to the above data the oil and gas industry in the UK has risen up by 1.8% during the year 2021 from the shell of 2.1% (Simplywall, 2022. It may be estimated that in the last three years 2020 the industry has had the best rate of return on investment. There may be the assumption of growth of 1.2% per annum for the year 2020. Furthermore, there may be different survivals in the sector of a long-term decline in the petroleum demand in the UK due to covid 19. Therefore, the next decade for the oil and gas market becomes a very difficult situation. The Global demand for oil may fall by 25% and sharply cut off the losses by 8%. Moreover, the process of oil and gas has underperformed that based on the metals and broader S&P 500 index by about “10% and 25% and 6% and 10%, respectively, since July 2020” (Deloitte, 2021). Therefore, it may also impact the heightened and Mass layoffs cyclicality on employment to continue the challenges. The reputation of the industry as a reliable employer that had laid off about 14% of the permanent employees in 2020. According to (Deloitte, 2021), this may show that 70 % of employment was lost by the end of 2021 due to the pandemic.

 Changes in UK industry under FTSE

(source: Simplywall, 2022)

The forecasting of the growth on the basis of the last three years, 2020, 2021, and 2022 in the stage of oil and gas storage. There may be an estimation of the 41% growth for the last 5 years. According to (Simplywall, 2022), the industry in the sector of oil and gas expected the earnings to decline by 16% per year over the next few years. The different investors of the UK will be the most optimal in the oil and gas industry that may be below 3 years of the average of 11.5%.

6. Strategy to mitigate the issue

The investors in the UK have created a clear view of the plan of the companies in the UK for energy transmission. There is some strategy has been taken for the mitigation of the issues.

Territorial dimension on economic response

The government has provided massive support in the sector of financial support to protect firms and households. The FTSE has dropped about 1.7% despite the sharp slide in the UK. The covid -19 crises may accelerate the awareness of the urgent shift to a neutral carbon economy at all levels of the government (Oecd, 2021). The “post-crisis of recovery” strategy may have the unique opportunity to allocate funds to reduce the intensity of economic activity. The UK mid-cap stock of FTSE 100 suffered its worst day in 3 months of 2020 to fight a fast-spreading to the new strain of the covid (Business, 2020). Therefore, these strategies will help to mitigate the issue of the economic crisis of the FTSE.

Rebalance of capital portfolio and spending

They evaluate the different decisions about the growth of the core business and the scaling of new business. The sector of the oil and gas industry in the UK may resolve the problems that have been generated due to covid (Mckinsey, 2021). There may be challenges to mitigate the cost, investment decision, and the arrangement of supply. The strategy of rebalancing the capital portfolio will help to enable reliable, ubiquitous remote connectivity and security.

Mega 25 surges ahead

 Mega 25, market performance in the UK

(source: Mckinsey, 2021)

The strategy of Mega 25 will help the sector of recording the market capitalization to gain a category of its own. There may be a collectivity that added £5.8 trillion in value to the increase of £ 231 billion (Mckinsey, 2021). There may be an overall rise of the market by £ 14 trillion over the past year. The oil and gas industry has faced high levels of loss during covid that impacted the fortunes of the business of the UK. the pooling of investors for the future and capital investment to the expected duration of the pandemic and its impact on the consumers. The start of “Mega 25” will help to generate the capital in the market by helping the investors. The exceptional market by performing the skew in the industry will promise new growth. Furthermore, these will increase the growth collectively in the increasement of the value by 1.8 trillion to represent 12% of the total gaining (Mckinsey, 2021). These will make 5000 companies in the UK convert the market into half of the 53 companies for market gaining.

7. conceptual framework

Conceptual framework

(Source: self-created)

8. Literature Gap

In this research study, Khan et al. (2020) has clearly explained the recession phase and its impact on the FTSE market but fail to explain the future expectation regarding the growth of the market. Mckinsey (2021) fails to explain the surge of oil and gas impact on the growth of the FTSE 100. The research study helps to gain deep insight on the impact on Covid-19 on FTSE 100 and look after the de3velopmnenet of the future growth of FTSE market in the UK.

9. Summary

This is to conclude that, some of the industries of FTSE 100 which included the leisure and tourism department which also includes the air travel department had the hardest hit. The companies which produced fossil fuel and shares of other large-scale manufacturing units were adversely affected. On the contrary, few industries dominated the shares of the market such as the druggist, chemist and food manufacturing units. In the year 2021, 1st January the market value of FTSE 100 shares increased to 6856 index value. Also, the shares of FTSE 100 on 14th of April 2022 the value of shares were7616.8. Thus, it recovered the crest from the fall due to the pandemic and started to perform well in the market supporting the GDP of the UK positively.

References

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econstor 2021 Downfall of FTSE Market

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