(Vir)alteration of investor optimism

Highlights:

• Just as the trade truce provided broad-based relief, the Coronavirus is unsettling global markets.
• The fast-spreading disease is challenging the tender global macro green shoots, but we still see resilience in US and EA domestic demand.
• Experience from past episodes suggests that markets tend to overshoot, but rebound sharply once the number of new infections starts to slow.
• Even before the Coronavirus, we had embraced a slightly more cautious stance on early signs of investor complacency. We maintain a (smaller) prorisk tilt in the portfolios, but reduce overweights in Equities and HY Credit. We keep our overweight in IG corporates and underweight in core bonds.

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