Chief Investment Officer
Summary: Corona-virus is now close to being named pandemic as infections increase dramatically in South Korea, Japan and Italy
What:
Corona-virus is now close to being named: Pandemic as infections increases dramatically in South Korea, Japan and Italy
Impact:
The main economic result is: An almost perfect storm for global supply break-down. South Korea is key, as in key, in supply chains for technology and similar both Japan and Northern Italy is powerful machine in SME and engineering product. Global economy will NOT be back to normal in Q2 – neither will it be V-shaped recovery. Hence “market” will be disappointed as they continue to play experts on only “gradual impact, too early to tell…” – No not really (see below)
Action:
FOMC will cut in March
G-20 FM all but promised massive fiscal expansion this weekend in Saudi Arabia
Gold – will continue to rally….. now calls for 2.000 is “neutral”.
BUT….
The main, and overlook, fact is this is potentially the beginning of new CREDIT CRISIS, created by companies dependency on just-in-time business models, extreme leverage financially, and now lack of both products and supply. In a world with extreme leverage in corporate sector, low top-line growth and supply disruption, the cash-flow shortage will potentially mean loss’ in banks, and among investors. The hardest hit sector will be none-listed SME companies, but in later stage global companies will follow.
OVERALL:
The best way to hedge your downside here is to BUY VOLATILITY, which is still cheap. We suggest 8000, 8300, 8500 puts in March (Please ask GST-sales to help you price)
We suggest following portfolio for coming period:
We have intentionally been keeping a low profile on Corona virus as it seems everyone is now an expert and furthermore able to predict when the full impact will peak, never the less this weekend development is concerning on spread as cases with no obvious China link is increasing and fast.
This changes the dynamics of WHO but also global impact with several events, including Serie-A games being cancelled in Italy.
BBC – Corona virus: “Narrow window” to contain outbreak, WHO says
Sky News: Coronavirus: Austria consider border controls over coronavirus outbreak
BBC: Coronavius: Venice Carnival closes as Italy imposes lockdown
Reuters: Vietnam report supply chain issues from virus, says may hit Samsung output
People website: Chinese top leader holds unprecedented meeting on epidemic control work
High unusual gathering with 170.000! Yes, 170K party officials being told China is having “dual approach” to Corona: 1. Getting economy back to “normal” to meet 2x GDP promise of CPC by end of year 2. Using all resources to fight disease.
My comment: There is much more focus on getting economy back than anything else in Chinese propaganda, and this is probably due to the “fall-out” from lock-down which in economic terms is measured in lack of funding, rising unemployment and insecurity. (Authorities is ramping up support, but most of fall-out comes in private sector which creates 80% of all service jobs in China)
Bloomberg: Millions of Chinese firms face collapse if banks don’t act
Conclusion:
The virus is top priority for us as societies, but the global supply chain break-down is the real economic impact. IF… we continue to see more and more dispersion outside China it will have significant disruptive on economic growth and overall on our economic system.
There is zero reason to be alarmist, but the complacency observed in the market is simply scary and hence there is need for being long volatility, central bank cuts, and gold.
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
