市场策略:疫情大流行及 “熊市”下的机遇

On 11 Mar, the WHO characterized COVID-19 as a pandemic. That triggered more sell-off in global stock markets and sent major indexes into bear market, i.e. 20% retreat from peak. In this report, we discuss the pandemic’s impact on global economy, Hong Kong stock market and various sectors. We see rising risks of global recession. But after some panic sell-offs, a short-term rebound in the HSI is more likely.

 

  • Rising risks of global recession. The WHO's declaration of pandemic helps raising public awareness and giving governments around the globe greater urgency to enact infection control measures. The economic damage of this pandemic will be broad and profound. We see rising risks of global recession, and estimate the global economy may only grow by 1.8-2.5% this year.

 

  • Monetary and fiscal stimuli not enough in dealing with pandemic. World’s major central banks have been taking large steps recently to calm financial markets and restore confidence by slashing rates and pumping liquidity into markets. The Fed on 15 Mar cut rate to 0-0.25% and launched QE worth US$700bn a month. However, measures to contain the spread of the virus is much more important than monetary easing.

 

  • Too early to call bear market. Corrections of over 20% are not always followed by further sell-offs and prolonged weakness. There have been numerous occasions that stock indexes, during a bull market, had correction of over 20% but then resumed uptrend. Economic outlook, corporate earnings, valuation and monetary policies, instead of magnitude of correction, are factors that should be considered in determining whether it is a bear market.

 

  • Panic not seen in a decade, but bond market is calming down. Last week’s panic in global stock markets have not been seen since 2008. But the bond market which may be “smarter than the stock market” is calming down. That may suggest the worst sell-off in equities is over in the short term.

 

  • HSI bottomed out in the short term. Market sentiment, valuation and technical chart all suggest that the Hang Seng Index is bottoming out. Whether global stock markets will sink further in the next few months is highly uncertain though, as that depends a lot on how effectively governments around the globe deal with the pandemic.

 

  • Buy infrastructure and internet stocks. From a top-down perspective, we continue to like infrastructure-related stocks as they are less impacted by the epidemic and oil prices’ fluctuations, while benefit from China’s fiscal stimuli. We also like internet giants as they suffer less than most industries from the pandemic, have bright growth prospect and are high-beta. Avoid stocks with meaningful overseas sales, strong connection with international companies or in global supply chain.

 

  • Sector views. We analysed the pandemic's impact on sectors that we cover. We are positive on construction machinery, 5G equipment and internet, while believe the pandemic have neutral or mixed impact on consumer staples, China banks and insurance, and negatively affect airlines, consumer discretionary, wind and solar and China property sectors.
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