The European Securities and Markets Authority (ESMA) has issued a new report on the impact of the pandemic, warning that the environment “remains fragile.”
ESMA’s second Trends, Risks and Vulnerabilities (TRV) Report of 2020 analyses the impact of Covid-19 on financial markets during the first half of 2020.
ESMA noted that following the equity market’s corrections in for risks in the first quarter of the year, the market enjoyed a rebound in the second quarter, strengthened by public interventions across the EU and elsewhere.
Equity markets have skyrocketed by 40% in the euro area since the middle of March, almost reaching pre-crisis levels.
However, the regulator also cautioned that the the current market rebound may not be sustainable due to the risk of a potential decoupling of financial market performance and underlying economic activity.
Additionally, ESMA feared that a prolonged period of risk of market corrections and other concerns to institutional and retail investors.
“The extent to which these risks will materialise will depend on two drivers: the economic impact of the pandemic, and additional external events in an already fragile global environment,” ESMA said.
“The impact on EU corporates and their credit quality, and on credit institutions, are of particular concern, as are growing corporate and public indebtedness and the sustainability of the recent market rebound.”
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