JPMorgan Says Stock Sell-Off Can Offer Chance to Add Shares

(Bloomberg) -- Global equities may be in turmoil amid fears about the spread of the deadly Chinese coronavirus, but JPMorgan Chase & Co. strategists say this could end up a buying opportunity.

While the sell-off in stocks could continue before the situation surrounding the infection improves, in the past such major outbreaks only led to a drop in share values of about 4.7% on average, the strategists wrote in a note. They retain a constructive view on world equities, adding that in the past, the more stocks have fallen on similar fears, the more they have rebounded later.

“Health scares, similar to the localized war campaigns, as well as the terrorist incidents, were historically buying opportunities, rather than the reasons for sustained selling,” wrote JPMorgan strategists Mislav Matejka, Prabhav Bhadani and Nitya Saldanha.

Volatility increased and global stocks tumbled on Monday after the death toll from the coronavirus climbed to at least 80 and infection spread to France and Canada, among other countries. Mining and travel shares were especially hurt, with metals prices plunging and China’s decision to suspend package-tour sales in an attempt to contain the outbreak weighing on travel and leisure shares.

JPMorgan strategists looked at the stock market reaction to past pandemics, including the 2003 SARS and the 2009 swine flu outbreaks. They note that these episodes didn’t lead to extended periods of equity selling and became buying opportunities “within weeks,” with indexes rising 23% on average in the three months after the peak in global interest for the health scare.

Both the S&P 500 and MSCI All-Country World Index surged to records this month as 2020 started on a jubilant note amid optimism over the U.S.-China trade deal. The elevated exposure of volatility-targeting funds in U.S. stocks at levels last seen in the run-up to February 2018, had fueled concerns in some quarters of the market, which for now at least are being borne out by events.

The S&P 500 lost as much as 1.9% on Monday, while the Stoxx Europe 600 slumped the most since Oct. 2, with the Euro Stoxx 60 Volatility Index surging the most since the February 2018’s “Volmageddon.”

Investors are also carefully analyzing earnings reports, with JPMorgan saying in a separate note today that companies will need to give strong guidance on top of delivering positive earnings surprises to make the shareholders happy.

JPMorgan’s confidence that risk assets can brush off coronavirus fears and resume their gains was also reflected in their call on bonds. The strategists including Matthew Jozoff on Friday said that the surge in demand for Treasuries will prove short-lived, sticking with a recommendation to sell longer-dated bonds.

To contact the reporter on this story: Ksenia Galouchko in London at kgalouchko1@bloomberg.net

To contact the editors responsible for this story: Blaise Robinson at brobinson58@bloomberg.net, Paul Jarvis, Morwenna Coniam

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