Evercore Says How to Invest Before Virus Market Impact Is Clear
Evercore Says Stay on Hold to Avoid Making Pandemic Market Call
(Bloomberg) -- It’s a tough task to gauge the ultimate impact of the Wuhan coronavirus on life or economies, much less on markets. So Evercore ISI recommends a holding pattern.
Without clear signs that risks of the virus have passed, there’s likely to be continued hedging against potential deflation in China as headlines remain volatile, strategist Dennis DeBusschere wrote in a note Sunday. While the uncertainty may anchor bond yields and endanger last week’s gains in value stocks, Evercore is asking investors to not act with the assumption that there will be a pandemic.
“For now, stay long sustained Growth and avoid extrapolating nCoV into a sustained negative market call,” DeBusschere wrote. “We are constructive on the global economy, but there is not enough data to dismiss the virus as a risk to equities.”
Financial conditions are easy, stocks are unusually attractive relative to bonds and earnings estimates remain solid, DeBusschere cnoted in a list of reasons to be bullish about stocks. Still, it’s still early for estimates of the extent of the virus impact, with a variety of forecasts being produced about how many people will be infected and when it might peak despite some potentially positive signs like global firms restarting production at China plants.
On Friday, Goldman Sachs Group Inc. strategists led by David Kostin recommended that investors who believe the economic consequences of the virus will be limited could increase exposure to cyclicals and value stocks.
DeBusschere agreed, though prefers waiting a bit longer before taking action.
“Assuming a pandemic is avoided and China responds with aggressive stimulus to ‘make up growth’ in 2H20, cyclicals/value are likely to have a more sustained period of outperformance,” he wrote. “We will wait for evidence of that happening before suggesting investors position for it.”
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To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, Naoto Hosoda, Ravil Shirodkar
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