We started the year believing that stock markets were stretched and in need of a consolidation phase. It strikes us that Coronavirus has given the pretext and we think it could yet push markets lower. However, and unless we are very much mistaken, we believe the economic impact of this virus will be short lived and barely noticeable by the end of the year. We therefore intend to use any future market weakness to add to our equity allocations (we are currently underweight equities – see our Model asset allocation in Figure 8). We would expect the biggest rebounds in the assets that have suffered the most over recent weeks, especially those in the emerging markets.
As said by a US president from a different era: the only thing to fear is fear itself.
Unless stated otherwise, all data as of 5 February 2020. Paul Jackson is Global Head of Asset Allocation Research with the Global Market Strategy Office. András Vig is Multi-Asset Strategist with the Global Market Strategy Office.
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^9 Source China does not publish flu statistics in the same way as other countries (it only counts deaths directly caused by flu and not those caused by complications such as respiratory problems). This range of estimates assumes that the total number of annual deaths is spread over either 6 or 12 months, using the 88,100 annual deaths estimated by Li Li, Yunning Liu, Peng Wu, Zhibin Peng, Xiling Wang, Tao Chen et al.: Influenza-associated excess respiratory mortality in China, 2010–15: a population-based study. The Lancet Journal. September 2019.
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