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JPMorgan Is Latest to Suggest Buying the Coronavirus Dip

JPMorgan Is Latest to Suggest Buying the Coronavirus Dip

(Bloomberg) -- JPMorgan Chase & Co. is joining the chorus of strategists and investors who say a deadly coronavirus outbreak in China may prove to be a buying opportunity.

“What tends to happen is that the market bottoms when the cases plateau,” said Gabriela Santos, global market strategist at JPMorgan Asset Management in New York. “Perhaps it’s a buying opportunity, especially in emerging Asia.”

Even as travel restrictions increase, the death toll mounts and new cases appear around the world, there are signs that some investors are pausing the flight from Chinese assets and proxies. The offshore yuan extended its climb in Asia trade on Wednesday after slumping the most in six weeks on Monday. While it’s too early for investors to know the severity of the outbreak and its impact on growth, there will probably be a further correction once the illness is contained, Santos said.

JPMorgan Is Latest to Suggest Buying the Coronavirus Dip

The biggest U.S. exchange-traded fund dedicated to Chinese stocks stabilized on Tuesday after falling the most since August on Monday. The $4.7 billion iShares MSCI China ETF, or MCHI, rose 1%.

The virus has shut down much of the travel to, from and within China, the world’s second-largest economy, and has killed more than 100 people. U.S. authorities advised travelers to avoid all non-essential trips to China, while some of Asia’s markets remain shut for the Lunar New Year holiday.

It’s enough to push Julius Baer, which last week encouraged investors to buy the dip, to take a step back. While the firm still holds a constructive view on Chinese stocks over the medium to long-term, it is warning of a further 10% to 15% depreciation.

“The Wuhan coronavirus outbreak has become much worse since we first commented,” Hong Kong-based Richard Tang, an equity analyst at Julius Baer, wrote in a note on Tuesday. “The virus is spreading much more quickly than initially expected.”

Still, firms from UBS to Morgan Stanley are recommending investors snap up assets while they’re cheap, and large U.S.-listed companies from Alibaba Group Holdings to JD.com are paring recent losses.

Here’s what others are saying about the impact of the virus on markets:

More from JPMorgan’s Santos on Bloomberg TV

  • Markets still lack clarity on contagion and severity
  • Typically, market impact of viruses are short-term
  • Markets bottom when cases peak before recovering and continuing on the previous trend
  • May see some hit on consumption, especially in Hong Kong and mainland China
  • Any economic impact is temporary and growth ends up at the same end-point, even if pattern of growth changes

Alejo Czerwonko, an emerging-markets strategist at UBS Wealth Management in New York

  • Any sharp market correction is a buying opportunity
  • “Using past outbreaks such as the SARS one in 2003 and the MERS one in 2015 as guidance, we expect the macroeconomic impact of the current outbreak to be limited”
  • Virus may have temporary impact on China and growth in 1Q, but it is likely to be followed by a recovery
  • Chinese authorities acted faster than during SARS and virus so-far seems less fatal
  • Online shopping is more popular, so sales may not be hit as hard

Ek Pon Tay, senior portfolio manager for emerging-market debt at BNP Paribas Asset Management in Singapore:

  • With year-to-date valuations still compressed, leaving limited risk reward, credit spreads are likely to move wider in the near term as the market currently doesn’t appear pricing in the peak of the contagion yet
  • He said he plans to increase positioning in North Asia corporates in the event the contagion subsides and valuations correct further. He has “modest overweights” in issuers with strong fundamentals as well as official policy support that are expected to be resilient to the economic challenges posed by the virus outbreak

Takeshi Yokouchi, a senior fund manager at Sumitomo Mitsui DS Asset Management Co. in Tokyo:

  • “The outbreak of the coronavirus, which will require a close look at the situation and impact on the market, hasn’t led to enough risk-off moves to the point where I have to change my basic stance on the strategy I’m taking at the moment”
  • Yokouchi is overweight Mexican and Indonesian assets, and underweight in South Africa and India based on their economic fundamentals, inflation and scope for further monetary easing
  • Being neutral on currencies and long on interest rates worked during the period because some emerging-market bonds rose, in tandem with their developed peers, while there were some selling in developing-nation currencies, he said

Delphine Arrighi, a fund manager at Merian Global Investors UK Ltd. in London

  • It will “eventually” be a buying opportunity, though more time is needed to see how severely it spreads and its impact on economies
  • In China, “given that growth was already stabilizing from low levels, the near term impact is negative, as is the impact on tourism in the region”
  • “More medium term, we think the growth recovery story remains unchanged, but we agree with the market re-pricing that temporary setback”

Gustavo Medeiros, deputy head of research at Ashmore in London, wrote in a Monday note

  • While fear over coronavirus is merited, “Chinese and international authorities’ reactions have been bold and fast”
  • That reduces risk of a global pandemic, “rendering the current sell-off a likely buying opportunity”
  • “The uncertainty surrounding the possibility of virus mutation or more aggressive human-to-human contamination, is likely to keep financial markets volatile, in the near term”

--With assistance from Lilian Karunungan and Yumi Teso.

To contact the reporters on this story: Sydney Maki in New York at smaki8@bloomberg.net;Aline Oyamada in Sao Paulo at aoyamada3@bloomberg.net

To contact the editors responsible for this story: Carolina Wilson at cwilson166@bloomberg.net, Philip Sanders, Tomoko Yamazaki

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