CORONAVIRUS IMPACT: WHAT SHOULD INVESTORS DO NOW IN ASIA?
While stocks have bounced back from oversold levels, we think there will continue to be consolidation in the near term. As workers resume normal duties on 9/10 February, we will watch for any acceleration in new cases. While the timing of the recovery is uncertain, we are highly positive that policy easing already has been strong and will continue to be so in order to support the economy. Asia credit has behaved relatively well so far and central banks’ support in the near term should help support economic growth impacted by the outbreak.
The coronavirus can be considered a ‘black swan event’ and has derated markets, especially in Asia. Here we summarise how investors can position themselves in Asian assets if the outbreak blows over in roughly the way the SARS epidemic did in 2003. The point of inflection for sentiments will likely be 1) declining ‘story count’ on major newswires and 2) plateauing new cases. Until then, investors should expect volatility. There will be short-term negative impact on retail, consumer cyclical, travel, real estate and utilities (on reduced overall activities). Defensive sectors include internet, healthcare and e-commerce. For credit, spread widening has been orderly and less severe so far, owing to strong support by the Chinese government to stabilise market sentiment and expectation of more fiscal and monetary policy stimulus. Safe-haven assets from US Treasuries to China government bonds benefit in the short term from risk aversion. We maintain our view that investors should stick to issuers with strong fundamentals and sufficient liquidity buffers to ride out this period.