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Financial markets have become immune to corona

“Financial analysis is forecasting the market psychology,” reckoned the famous economist John Maynard Keynes a century ago. Psychology alone has not been sufficient this year. Markus Allenspach, Head of Fixed Income Research, shares his view on the markets.




We all became epidemiologists in the early days of the crisis, just to realise that the coronavirus was not following the script of the SARS virus of 2003. We then moved to reading daily data from restaurant bookings and mobile network usage to estimate monthly and quarterly trends – a process that would probably make our economics professors’ hair stand on end. Now it looks like we have become accustomed to the volatility of the daily figures of new Covid-19 cases and traffic data, and the financial community is moving back to what the equity market is based on: corporate earnings. Our strategists maintain their call that market expectations are too low and that positive surprises will allow the stock market to move higher again.

End of fiscal support in the US
Corporate earnings are not completely decoupled from the underlying economy. In this respect, it is worth keeping track of macroeconomic trends. Our economists are more confident than the European Central Bank, and other official sources seem to say that the European economy will keep recovering decently. In the US, on the other hand, the fireworks of fiscal support is coming to its end. US lawmakers must agree on a new package before the end of July. As time is running out, volatility could rise, and we recommend keeping some room for manoeuvre, sticking to mid-duration bonds with moderate credit risk only.

Chinese equities are the net winners of 2020 so far, and we expect their uptrend to continue.

Markus Allenspach, Head of Fixed Income Research

China’s strong stock market
China features in the headlines very prominently, although not always for the right reasons. There are trade tensions with the US, competition for global technological leadership and a new security law in Hong Kong. The strength of the Chinese stock market is often overlooked, especially thanks to its clear technology leaders and its strong hand in the fight against corona. Chinese equities are the net winners of 2020 so far, and we expect their uptrend to continue.