February in Review

 

The global markets woke up to the impact of coronavirus in February and as a result February saw a retracement of performances. S&P/TSX is down 3.3% in February and -1.6% year to date. S&P500 was down 7.5% in February and -7.5% year to date. While markets are leading indicators and can look through short term disruptions, the longer term economic impact is too early to tell.

 

 A Framework for thinking about random shocks

 

While the global economy has entered late stage of the growth cycle, there have been pick up in business activities in the recent month.  Our economists do not forecast a recession in 2020.

 

Some updates on COVID-19

 

• The good news is the number of daily new cases in China has levelled off. However, number of daily new cases outside of China has accelerated.
• Low mortality rate and number of recovered patients continue to increase at a heathy rate.
• Lack of visibility on how outbreak may evolve and when containment will be achieved.

 

Using SARs as a guidance, the outbreak lasted for well over a year before containment was achieved. Some good news on the production front, China has restarted manufacturing activities. Mutli-nationals such as Starbucks have reopened three quarter of the stores as well as Apple reopening factories in China.  

 

Policy stimulus responses: Ramping Up

 

I expect global central banks to provide relief in lowering benchmark interest rates as well as for governments to increase spending to further stimulate the economy.  Japanese central banks have vowed to support market stability and purchase stock funds. Overall, more growth supporting measures from policymakers in general and China in particular are expected over the next few months.

 

Valuation: Crisis or Opportunity?

 

The recent market pull back has provided some attractive opportunity in the market for some quality names. While valuation is still not cheap, it has certainly improved. In the course of the past week, P/E has dropped to 17.7x from 19.1x.

 

Source Fidelity, FMRCo, Bloomberg, Haver

 

Epidemics and Stock Market Performance

 

It may provide little comfort in saying we have been here before but it bears repeating investing in the market can be volatile and investors need to focus on investing over the long term.

 

Source: Charles Schwab, Factset data, Market Watch

 

 

Rita Li works with professionals and business owners to provide tailored investment advisory service and wealth management planning. Her team comprises of professionals with in-depth taxation and legal expertise, together, they deliver a high standard of service to clients. Rita is a Chartered Financial Analyst CFA® and Certified Financial Planner CFP® with expertise in asset management. Rita obtained her MBA from Richard Ivey School of Business.

 

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