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The market crash from coronavirus wasn’t the result of one shock, but three.
The first shock was the realization that the coronavirus outbreak wasn’t just a Chinese problem as it rapidly turned into an international pandemic, says Philip Saunders, the veteran fund manager and co-head of multiasset growth for Ninety One, the asset management arm of South African banking group Investec.
The second was what Saunders called the “grotesquely mistimed” price war between Saudi Arabia and Russia in the oil market. And the third was what he said was best described as an international dollar margin call.
The Federal Reserve did briefly lose control of the Treasury market. But by announcing unlimited quantitative easing, and a host of other programs, the Fed restored market functioning and revived the corporate debt market as well.
“I think what we do note is that the reaction by the monetary authorities and also governments has been truly extraordinary, in the sense that the lessons of 2008 where there was a lot of faffing around and that made a bad situation worse,” he said in a presentation to the media. He said the scale of central bank intervention goes beyond “helicopter money” into “B-52 money.”
He is forecasting a V-shaped recovery in industrial production.
“We’re likely to put a low in from an industrial production standpoint, probably later this month on a global basis, conceivably in May. And I think once we’ve done that, then the economic dynamics are going to become a little bit more benign,” he said.
He said Mar. 26 was probably the market low — noting the breadth of the gains on the New York Stock Exchange on that day.
“It shows the level of breadth that is typically associated with the beginning of either major bull markets, or, major multi-month rallies. So again, although obviously, equities have traded in a volatile way subsequently, we think that we’re seeing price discovery beginning to sort of come back,” he said.
Saunders said it has been one of the best times to build quality exposure since 2018 as he favors companies with stronger balance sheets and lower leverage. He also said he likes Asian consumer-facing businesses as China shifts to a more domestic-oriented economy.
“The valuations are extremely attractive, they got driven down to levels that we thought were compelling. And they don’t depend on share buybacks in order to actually drive earnings. These are real earnings,” he said.
After the 7% surge on Monday, the S&P 500 SPX, +7.03% is up 19.05% from its 52-week low of 2237.40 on Mar. 23.
Nonetheless, the benchmark is 21% lower from the Feb. 19 peak.
