Effects of coronavirus on the markets

10 February 2020

The Noise

  • The number of deaths and infections caused by coronavirus continues to soar. Two months after the first detected case, the death toll has now risen to 563 with over 28,000 confirmed cases. In the Chinese province of Hubei, nearly 45 million people are under the largest quarantine in human history, a number roughly equal to the entire population of Spain.

  • China’s central bank, The People’s Bank of China, injected more than £130bn of liquidity into the country’s financial system on Monday in an emergency attempt to shield the economy from the effects of the virus as stock markets reopened from their extended closure. This decision marks China’s largest open market operation in a single day since 2004.

  • In a busy week for Donald Trump, the US President was acquitted in his impeachment trial the day after he gave his State of the Union address to Congress. A noteworthy moment in the State of the Union was the moment Democrat Speaker Nancy Pelosi ripped up pages of the speech after President Trump finished speaking. Over a quarter of the speech was dedicated to Trump’s economic achievements, with him making claims such as “Our economy is the best it has ever been”. Dubious? Well Nancy Pelosi seemed torn. 

The Numbers


The Nuance

The coronavirus has dominated the news of the investment world just as significantly as it has the mainstream news in the past week. Despite the impact which the virus is expected to have on global growth in the short term, equity investors have decided to shrug off this bad news and look through to the resolution which is hopefully forthcoming. Markets have rallied somewhat this week as investors have bid up higher-risk assets on the back of central bank injected liquidity. It seems that the Chinese response has succeeded somewhat in this respect, if only by bolstering confidence in markets.

As active and prudent investors, we are of course spending a great deal of time analysing and assessing this market backdrop against which our investments lie. We have been carefully considering not only the longer term impacts of this virus on economic activity but also the shorter term effects on corporate earnings. We have seen a good deal of complacency in markets in the last few weeks but we are, as ever, sure to keep a level head in our approach. Currently, we are happy with the high-quality assets we own and with our constant, active review process, we currently see no need to change our strategy.

Quote of the week

“It feels like Tesla is entering the final stage of its life.” Crispin Odey.
Now, we’re cheating a bit here. Whilst originally spoken in August 2018, it’s fair to say that the context surrounding this quote has changed significantly this week. In 2018, hedge fund manager, Crispin Odey loudly and publicly announced his short position in Tesla, betting against the electric car manufacturer. The company’s share price has skyrocketed in 2020, up 80% since the start of the year. Analysts have suggested that rising demand for the company’s flagship car combined with strong fourth quarter results are the cause of the surge. Mr Odey was still betting against Tesla in late January and his fund has emerged this week as one of the highest-profile casualties of the share price rally. This is somewhat reminiscent of the 1943 President of IBM’s prediction: “I think there is a world market for maybe five computers”. Making sweeping statements about the future is always a dangerous game.
Source: ft.com

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