Covid has become a clear and present danger. There were a few other threats to the Indices, but they were lurking in the back of the people’s minds. They were used as wordings to fill the latter part of a stock market article.
After the recent events leading to the start of a bear market, investors will weigh in other factors causing global slowdown as well. Other factors like, liquidity issues with banks, poor demand in most sectors, falling crude prices.
But, what will cook the goose is the deadly combination of lofty valuation and poor performance, lack of growth, causing a serious case of unfulfilled expectations. It is time for the rubber-band to snap back.
Coronavirus is a completely out of syllabus type event. None of us know how bad it could get or whether we’ve already seen the worst.Last century,the biggest epidemic was the Spanish Flu,it affected 27% of the world population.We are far,far away from those kind of numbers.One good thing is that the mortality rate seems low and the recoveries have been decent.Also given that we are in a well-connected world,concerted action will be far more effective than 100 years ago period.
Travel and related sectors are in doldrums.Any companies in these sectors that were leveraged stand the risk of being wiped out.This will have an impact on financials too.However,mfg. has not been stopped so far.Tech industry continues to function via work from home.The difference this time is that it’s not as if the population’s purchasing power has reduced.Neither has the money in their pockets.It’s just that you are forced to spend less given the prevailing situation.There is no job crisis either(as yet) However,there is already a lot of articles on how recession is coming,what will be the length of it,etc.There was some ‘study’ by Moody’s analytics too,which states the number of jobs in US that could be affected.My short point is that it seems impossible to gauge the net impact of the virus but there is already enough written about the adverse future.Consensus wisdom is building in far higher infections than present and a very negative impact on the global economies.Amidst all this,prices across asset classes have crashed.Global equities too,are down anywhere between 25-35%.This has been the fastest fall ever.Volatility indices are at record high levels.Now what we need to understand is how much of the ill-effects of Corona have been discounted in this steep fall already.The world is not going to end(that’s my belief) Our growth is going to slow down.The question is how much? The answer will put a floor and a ceiling to the markets.As of now,it’s mostly speculative.
In India the broader markets had been correcting since early 2018.After a small respite,we’ve again started falling.The valuations in a lot of unlevered,cash generating companies with no visible issues is very compelling already.The price performance is indicating 2008 2.0,while the valuations of the broader market are almost already there.Mind you,that we had no exuberant economy,period of high returns,high retail participation in direct equities,etc. leading up to 2020.Globally interest rates are at record lows.Where will all these trillions of dollars go? My sense is once countries start to put in concrete systems for tackling the virus,it will soothe the nerves of the market.
Disc.: Mostly invested and not too much cash.Views are biased.
“Nobody saw this coming”
“People did not even know what the magnitude of the problem was till 10 days ago”
“This is an event whose impact/outcome is difficult to estimate”
“I have never seen the markets behave this way”
“This will lead to bankruptcies and write offs for banks”
“Jobs may be lost, consumption will slow down and it may takes years for things to reach normalcy”
All of these statements were made during the 2008 crisis as well. In fact every major crisis has a similar meta investor mindset
When we came off the 2008 lows, markets ran up way before the situation on the ground got better. The biggest regret of most people investing today is that they could not invest much from Oct 2008 till March 2009 when everything seemed lost
While the details of each crisis are different from one another, the thinking process and behavior of markets remains the same.
In 2008 we just had QE and liquidity from central banks. This time we might actually have cash handouts in addition to QE, liquidity and fiscal spending.
It is time to start thinking about the following -
How do I ensure I get away with acceptable damage due to this fall?
Are you convinced that this time is different? If so, why?
At what point of time do you want to start biting into the falling market
What stocks do you want to buy and for what reasons?
What is your framework to mitigate risk in case the selloff extends longer than you expected?
The coronavirus related fall is so fast and furious that it looks like Nifty may surprise even the most conservative on the downside. The Friday bottom has been taken out. If community transmission of the pandemic happens in India, things can get really bad and out of control. Hope things improve without becoming worse. Portfolio is bleeding very badly. Had some FD maturing this week but decided against investing it in stocks. Let the Covid-19 scare play out before committing fresh money.
I think biggest difference between 2008 and 2020 is… in 08 the question mark was on survival of business due to financial market collapse.
In 2020 it’s question mark on survival of people itself if things goes out of hand. If business is zero , people can build new business but if people dies in bigger magnitude , with no cure in few months then it’s dangerous situation. And people are afraid of that situation . So their is panic
I’m sure if you talk to investors or thinkers in China, they would not be so grim at THIS time. Because they have moved to the right side of the Corona curve (# of ppl infected timeline), whereas we are just starting to ride the curve, going towards the top. So, what’s important is to keep calm (relatively), and to consider key questions that Zylog mentioned above.
I am in transportation, port infrastructure sector. Have a few insights on the current situation in China as we/our industry is the first to ‘feel’ the uptake or the slide in cargo movements from production centres like china . A few notes :
Imports in China ports which were not getting cleared past weeks, are now at normal pickup levels.
China factories 96% reopened with 73% production capacity live.
Trucking capacity deployed is at 85%. This was less than 50% 3 weeks back.
Intra-Asia volumes very strong from China to South-East Asia, this is mainly raw materials and intermediate items/components.
Korea auto companies impacted although slowly recovering.
Japan production largely unaffected.
The key developing risk now is that while china comes back up to ‘normal’, the goods shipped out of china cannot be delivered in Europe and US - the main destination areas. This is because Europe and North America become new epicentres of Covid-19 and these countries go in various stages of lock down, with ports slowing down. This mean that even if China is ‘ready’ and back to ‘normal’, volumes will not pick up and this will then mean china will have to slow down again in a few weeks.
Are they still in lockdown? In my view, if the restrictions are taken off then the risk of infections is still there. Fresh wave of Coronavirus infections can start again in few weeks.
Parts of china which had imposed lock down are is no longer in lock down status anymore. Even Hubei province lock down has been eased. Earlier there were restrictions on workers returning to factories for a 14 day quarantine. 3 weeks back this was lifted for all workers except those returning from Hubei province will still be quarantined. The risk of reccurence is still there , however less likely if situation in Hubei province is contained.
This morning china reported no domestic cases of coronavirus for the first time since outbreak. All new cases ( 34 today ) are recent overseas arrivals.
