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Investors must remain nimble and closely watch four key areas, including the daily spread of the virus, policy responses and signs of global panic to get through the coronavirus crisis, BNP Paribas said on Thursday.
The investment bank’s asset management division said it was now overweight U.S. and emerging market equities and said its market indicators had thrown up a contrarian buy signal.
The team, led by senior multi-asset strategist Maximilian Moldaschl and head of research and strategy Guillermo Felices, said they were open to adding to those positions but would remain “nimble in taking profits” given the increased volatility in markets.
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“Our dynamic technical analysis suggests that we are still in a bullish cycle medium term, so a rebound is possible,” it said in a note.
Market stress indicators are rising but are not “unhinged” with sentiment still in “virus panic mode,” it added. The team also added to the long gold trade following a recent drop in prices.
The coronavirus crisis continued to escalate on Thursday with countries in Europe — now the epicenter of the virus — ramping up measures to contain its spread.
The European Central Bank unveiled a €750 billion bond-buying program in a bid to calm markets. The huge stimulus announcement worked initially but European stocks lost earlier gains in the afternoon and U.S. stocks opened lower, with the Dow Jones Industrial Average DJIA, +0.89% slipping 200 points – 1% in early trading.
In its fundamental base case, BNP Paribas Asset Management expected the coronavirus pandemic to be mitigated by “drastic measures and policy responses that avoid a systemic crisis.” The main risk to that case was that COVID-19 morphs into a systemic crisis leading to a more severe global recession.
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The emergence of a vaccine would be a “game changer,” Moldaschl and Felices said, but in the absence of one investors should monitor the virus spread. With coronavirus cases surging in Europe but the daily growth rate gradually slowing in Italy — the worst affected country — the U.S. is the next large economy to watch closely, they said.
Another area to monitor is sentiment and market stresses to gauge the panic levels generated by the pandemic. The strategists said Google GOOG, +3.40% searches and new stories mentioning coronavirus were still on the rise but that “market-based metrics of systemic risk are still under control: funding stresses and USD shortages creeping up, but not unhinged for now.”
