(Vir)alteration of investor optimism
Financial markets staged a strong start to the new year, propelled by the ‘phase one’ US/China trade agreement. And yet, a new spectre has caught the markets. The confirmation of human-to-human transmission of the Coronavirus on Jan. 20 and a first US case a day later caused risk sell-off in the second half of January.
- 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.
Download the full publication below
LIFE AFTER COVID -
THE LDI VIEW