Investment Clock insights

Buying stocks on coronavirus weakness


Trevor Greetham

4 February 2020

Intensifying concerns over the impact of the coronavirus outbreak triggered the worst week for stocks since August 2019 with China particularly hard hit. As a result, our investor sentiment indicator is registering its first contrarian buy signal since that time (chart 1).
We expect the virus outbreak to make a dent in industrial production and consumer spending in the near term, but policy makers in China and elsewhere are likely to react by adjusting policy to an easier path and demand is likely to bounce back once the situation comes under control. There are already signs that global growth will improve as the year progresses, with our Global Growth Scorecard at its most positive level since December 2017 (chart 2).
News about the spread of the virus is almost certain to get worse before it gets better but our analysis suggests it usually pays to buy when others are panicking. We are starting to add to equity positions in our multi asset funds in anticipation of stronger growth later in the year.

Intensifying concerns over the impact of the coronavirus outbreak triggered the worst week for stocks since August 2019 with China particularly hard hit. As a result, our investor sentiment indicator is registering its first contrarian buy signal since that time (chart 1).

We expect the virus outbreak to make a dent in industrial production and consumer spending in the near term, but policy makers in China and elsewhere are likely to react by adjusting policy to an easier path and demand is likely to bounce back once the situation comes under control. There are already signs that global growth will improve as the year progresses, with our Global Growth Scorecard at its most positive level since December 2017 (chart 2).

News about the spread of the virus is almost certain to get worse before it gets better but our analysis suggests it usually pays to buy when others are panicking. We are starting to add to equity positions in our multi asset funds in anticipation of stronger growth later in the year.

Chart 1: RLAM Investment Sentiment indicator and Global Stocks

Source: Refinitiv Datastream as at 31/01/2020

Note: RLAM Investor Sentiment indicator includes factors related to market volatility, private investor bullishness and US company director dealing in shares in their own companies. A reading of -1.0 or lower indicators a contrarian buying opportunity.

Chart 2: RLAM Global Growth Scorecard and G7 GDP Growth

Source: Refinitiv Datastream as at 15/08/2019

Note: RLAM Global  Growth Scorecard is a six month directional lead indicator for global growth including factors related to central bank policy stance, OECD lead indicators, business confidence and consensus GDP forecasts.

Past performance is not a reliable indicator of future results. The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice. Portfolio holdings are subject to change, for information only and are not investment recommendations. Information correct as at 3 February 2019, unless otherwise stated.