COVID-19 has wiped hundreds of billions of dollars off stock exchanges, but its impact won’t be restricted just to the headline indexes.

Markets such as the ASX shed over 30 per cent in the March quarter along with hundreds of billions of dollars.

Stockhead found the ASX began 2020 with a combined market capitalisation of all its companies of $2.3 trillion. But by March 24 that had fallen over $674bn to $1.6 trillion.

Meanwhile, London’s exchange shed £830bn ($1.55 trillion) across the first quarter. Although both markets have seen a recovery, they still sit below their New Years Eve highs.

As of May 18, the ASX still sits $385.6bn below what it was in January. The UK however has only seen an £80bn ($150bn) gain despite the FTSE 100 rising over 20 per cent.

 

The rise of zombie companies

The vast majority of companies have felt the impact.

Scott Atkins, a partner at Norton Rose Fulbright, said in an opinion piece that the COVID-19 pandemic had made some businesses unsustainable.

He also warned that government support measures such as JobKeeper were prolonging this crisis.

“Saving all companies, even when they are not viable and were in financial difficulty well before COVID-19, is not always a good thing,” Atkin said.

“This [support] could indeed spark a pandemic of a different kind — that of the ‘zombie company’, with entities taking advantage of subsidies and a benign financial market (with historically low interest rates) to keep open the doors to businesses that will never be self-sustaining, all while tying up the very capital investment needed to support new projects and business models in a post COVID-19 world.”

“We need to have an honest conversation that some of the business models that were so successful when the clock ticked over into 2020 may no longer be sustainable in the circumstances we now find ourselves in.”

 

The industries facing disruption

Industries that Atkins warned were particularly vulnerable were the hospitality and retail sectors.

He noted that there was already a noticeable reduction in the need for physical floor space and increased deliveries prior to COVID-19. But the pandemic has accelerated this and not just temporarily.

Last month, NAB said COVID-19 would be the catalyst for online shopping to take off in Australia.

And in recent days ASX small cap retailers such as Baby Bunting (ASX:BBN) and Shaver Shop (ASX:SSG) have reported an increase in online sales.

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