Activity – Seth Golden – Finom Group

Seth Golden posted an update 4 years, 7 months ago
Bernstein: A question we are asked on a daily basis is ‘Why aren’t markets selling off more?’ Economic growth in China and throughout much of Asia will be close to or below zero in Q1 and whilst this does not constitute an economic crisis in itself, what if measures to revive the economy are unsuccessful? History suggests novel viruses may be among the few episodes during which Asia equity markets are able to maintain composure. The equity market response to the coronavirus mirrors almost exactly the response to SARS in the first half of 2003 (where the peak-to-trough drawdown of the MSCI Asia ex-Japan was -8% and took four months). In short, equity markets are pricing in a repeat of SARS. Looking at the five major economic dislocations in Asia over the last 25 years (Asia financial crisis, the Tech Bust, SARS, the Global Financial Crisis and the Shanghai Bust / RMB depreciation of 2015-2016) it’s clear that that regional equity markets take financial crises far more seriously than they take medical crises. Whilst some can argue that the starting point is different this time we note that the muted drawdown in 2003 and this year both took place when P/Es were above long term averages. Markets are looking through a terrible Q1 and instead valuing equities on 2021 earnings. We are keeping a close eye on the daily infection/fatality trend, particularly outside Hubei but expect a snap back in demand in Q2. By the time Q1 results are all out (April/May), if transmission is under control by then the market reaction to date could well be proved to have been the correct one. We’ll see if others follow Apple’s warning last night and how this filters though the market ….. but market reaction to COVID-19 to date suggests that everything else needs to go right from now…
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