2019 was a very successful year for stock market investments and helped to recover from the correction in 2018. Economic growth was shrinking and could be affected additionally from the outcome of the Coronavirus.
The easy monetary police inspired equity markets during the past couple of months. Cheap money supports optimism of investors in an environment of low inflation. Positive company figures are driving stock market prices to the upside. This optimism should lead to caution even there is no euphoria visible as on front pages of newspapers no superlatives are presented, and taxi drivers don’t give tips for stock picks.
There is still a lot of liquidity on money market accounts, although banks in Europe pay negative interest rates and more and more banks are passing these negative interest rates over to clients. Banks cannot and don’t want to pay this bill by their own anymore. This could be supportive to stock markets as dividend yields are attractive and quite often are more attractive than bond yields.
Nevertheless, we are detecting some nervousness on the investors side. Evaluation of equities is high, and every investor is monitoring if there could come up some hazards. Right now, the Coronavirus is creating uncertainty. One week ago, the world has got the official warning and we were informed that 200 people fell ill and four died. Shortly after that we were told that 2744 people fell ill and 80 died. One day later 106 people died, what gave the hope of a slowdown of momentum. Stock markets recovered. The next day another increase of the number of sick and dead people followed and stock markets dropped again. Healthy people seem to be affected by the Coronavirus similar to an influenza, which leads to the argument, that there is no reason for panic but demand for caution.
The costs for the Chinese Economy in 2003 because of SARS was about 0,8 % of the Chinese GDP. The biggest part occurred during the first three months after announcement.
Right now, we seem to have a “buy-the-dips” strategy what could be supportive in connection with the high liquidity on investors account. US stock markets showed better performance during the last years against other big world markets. Based on that we expect less risk in Europe, Asia and Emerging Markets.
We face a lot of hurdles for investors. US elections, BREXIT contract which needs to be fixed by December 2020, US – Chinese phase 2 deal, US/European trade dispute, US repo market liquidity crunch and the political dispute in middle east, to name just a few.
We recommend a reduction of risk as precaution und believe that new buy recommendations might be too early.
Schaan, January 29th, 2020