Markets have rebounded over the past couple of days both Globally and here in Australia. This was partially due to the US$2 Trillion stimulus package approved by the US Senate as well as investor sentiment on increased stimulus measures around the world.
Is this a Dead Cat bounce? Our view, as we have relayed to you all over the past couple of weeks, is that markets will continue to remain under pressure and could fall further once the virus starts to peak both here in Australia as well in the Northern hemisphere, especially the US, in the next 3 to 4 weeks.
It is interesting to see the depth as well as speed of this recent downturn. See the chart below that compares the current downturn versus other market corrections over time (click on the chart to enlarge):
This downturn has been as a result of a health crisis as governments and society have halted economic activity to stop the spread of this virus. Testing in the US has only just begun, and the virus spread is still likely to increase globally.
On the positive side, China, South Korea, Japan, Singapore and Hong Kong are examples of what has worked and hopefully more countries follow their process. Quarantining, hygiene, extensive testing and acting early can slow the spread.
The experience with SARS is that markets did not trough until a week after new cases had peaked, which was in late April. When Covid-19 will peak is any one’s guess. The experts appear to generally agree the situation should improve as warmer weather approaches in the Northern Hemisphere, as it did for SARS, swine flu and MERS.
Hopefully, common sense prevails and President Trump does not open up the US to a disaster by relaxing the quarantine by Easter, as per his rhetoric a couple of nights ago. This would further exacerbate the virus spread in the US, causing more widespread fatalities and further market downturns.
Unfortunately, Australia is heading into winter. However, it has the advantage of a strong health system, experience from Asia, and less population density—we can actually distance ourselves from each other unlike places like India and Africa, where the population density is enormous and poverty puts people at huge risk due to overcrowding of housing, transportation, lack of healthcare, etc. One estimate sees a peak in new daily cases in Australia by the end of May. Haven spoke to a number of GP’s and specialists in the past couple of days, they are of the view that this may peak sooner around April end, which would mean a faster end to this isolation and depression we are all experiencing I am sure.
However, the world has come together against this crisis. Social distancing and quarantining seems to be working based on results from places like China (if one believes the stats from China) but also Singapore, South Korea, and Japan. The smartest minds in immunology around the world are working on a vaccine. There seems to be no question of if, just when it will be ready and available. There is light at the end of the tunnel!