Unprecedented natural pandemics such as COVID-19 alter the normal operations of capital markets. Global financial and capital markets are significant for resource mobilization for international businesses. The markets have various benefits ranging from a higher return on investments to cheaper borrowing costs. Investors in the global capital markets maximize their profitability by making less risky financial decisions. However, the markets are subject to the external business environment, and natural pandemics interfere with their routine operations. Maneejuk et al. (2022), in the article “The Transition of the Global Financial Markets’ Connectedness During the COVID-19 Pandemic,” explores how natural pandemics affect the structure and connectedness among capital markets. Although global capital markets are more beneficial than domestic ones, they are encumbered by natural disasters such as COVID-19.
The article explores two possible and significant impacts of COVID-19 on the global capital markets: structural and connectedness. Maneejuk et al. (2022) explore global financial markets consisting of stocks, commodities, gold, U.S. exchange, real estate investment trust (REIT), oil, and cryptocurrency (bitcoins: BTC) pre and post-COVID-19. The article utilizes network analysis and wavelet coherence to determine structural change and connectedness in the global market during COVID-19 (Maneejuk et al., 2022). The results show structural market change among all the global financial markets, except BTC.
Additionally, the researchers investigated the recovery speed of each of the global capital markets after the pandemic. Although the U.S. exchange fluctuated before and during the pandemic, it recovered faster from the pandemic than other capital markets. Meanwhile, REIT had the least fluctuation rate but the slowest recovery speed (Maneejuk et al., 2022). Furthermore, the researchers found that although the pandemic did not alter connectedness among the global capital markets, it affected their relationship to varying degrees. Therefore, the COVID-19 pandemic affected global capital markets to various extents.
Impact of COVID-19 on Global Capital Markets
COVID-19 was detrimental to the operations of the global capital markets, affecting investors’ decisions. Highly volatile global capital markets such as the U.S. exchange are affected more by the pandemic (Ofori-Boateng et al., 2021). Consequently, investors in the financial markets experienced losses during COVID-19. The consistent losses were due to the governments’ decisions to suspend many economic activities such as selling non-essential products (Pardal et al., 2020). However, the pandemic was least impactful on less volatile capital markets such as REIT and gold (Maneejuk et al., 2022). Many investors opted to stick to volatile markets because of their quick recovery rate from the crisis (Ofori-Boateng et al., 2021). The consequent free fall in share prices and uncertainty affected international businesses that were dependent on the capital market for survival (Pardal et al., 2020). The adoption of effective risk management approaches is crucial for investors in global capital markets in the wake of pandemics such as COVID-19.
Article’s Application on Course Content
The article by Maneejuk et al. (2022) applies to the course content and readings in three significant ways. Firstly, the article can be applied to understand the risks associated with global capital markets as discussed by Hill (2021). The researchers show how the pandemic made investments in international business a dicey activity. Secondly, the article can be used to understand risk variations among the different global capital markets, ranging from financial to REIT. Lastly, the paper has crucial information that can be used to understand effective risk management approaches in the global capital markets. Therefore, the article by Maneejuk et al. (2022) can help understand various global capital market aspects as discussed in chapter 12 of the course content by Hill (2021).
Global capital markets promote business growth among international corporations. However, the markets are subject to external business environmental factors that are beyond corporations’ control. The COVID-19 pandemic negatively affected the different global capital markets in terms of structure and connectedness. Although the volatile markets were least effective and profitable during the COVID-19 pandemic, their crisis recovery rate was the fastest. The COVID-19 pandemic made investors in the global market to be mindful of their decisions.
Hill, C.W.L. (2021). Chapter 12: The global capital market. In International Business, Competing in the Global Marketplace. Mc Graw Hill.
Maneejuk, P., Kaewtathip, N., Jaipong, P., & Yamaka, W. (2022). The transition of the global financial markets’ connectedness during the COVID-19 pandemic. The North American Journal of Economics and Finance, 63, 101816. Web.
Ofori-Boateng, K., Ohemeng, W., Agyapong, E. K., & Bribinti, B. J. (2021). The impact of COVID-19 on stock returns of listed firms on the stock market: Ghana’s experience. African Journal of Economic and Management Studies, 13(1), 136-146. Web.
Pardal, P., Dias, R., Šuleř, P., Teixeira, N., & Krulický, T. (2020). Integration in Central European capital markets in the context of the global COVID-19 pandemic. Equilibrium, 15(4), 627–650. Web.