The Dead versus the Living Stocks

Measuring the Zombification of Stock Markets Around the World

November 2020. Reading Time: 10 Minutes. Author: Nicolas Rabener.

SUMMARY

  • Zombie stocks are a diverse group, both from a country and sector perspective
  • Zombie stocks were fundamentally riskier, yet outperformed non-zombie stocks over the last year
  • Oddly, investors need to pay up as they are also more expensive

INTRODUCTION

Walking through financial centers like London or New York in the spring of this year felt in many ways like being a zombie movie. Shops were boarded up, restaurant and cafes closed, and office towers unoccupied. The few people walking outside were quick on their journeys and keen to avoid any human contact. Food was getting scarce.

Fortunately, the COVID-19 virus does not turn humans into zombies, although the same can not be said about companies. The topic of the zombification of the global economy has become a more frequent topic this year as many companies are being kept alive by government subsidies.

The topic of an economic zombification is not new and has most often been discussed in the context of Japan, where the banking industry was allowed to survive after the stock and real estate markets crashed in 1989. The banks carried large mortgage books that, had they been written down, would have made these institutions insolvent.

However, the Japanese government was not in the mood to let that happen, similar to how governments currently are unlikely to let entire industries falter, even if they are not fit for a post-COVID-19 world. Think travel operators, airlines, shopping centers and office landlords, entertainment businesses, and so on.

In this short research note, we will explore the current state of the zombification of stock markets across the globe as this is bound to change dramatically over the next few months and years. More zombies will emerge, and they will haunt the living (read The Rise of Zombie Stocks).

THE MOST ZOMBIFIED STOCK MARKETS

Zombies in movies are much easier to spot than in the corporate world. A human zombie is essentially a deceased body that magically still functions and is driven by the need for fresh human flesh. It neither looks pretty nor smells particularly w