Markets Are Better Off Open, Even in Times Like These 

(Bloomberg) --

In these times of soaring volatility, record drops and short-selling bans, investors are riding a roller coaster. While some might debate the benefits of closing dealing venues and the U.S. is mulling shorter trading hours, in times like these markets matter more than ever.

Financial markets may be volatile, but they ultimately help pricing economic and profit growth, corporate valuations, and events. They plummet and inflict pain in the same way that they provide reward. At no point during the Global Financial Crisis were markets shut, even though we got close to a total collapse of the banking system. Soaring volumes and continuous pricing have allowed transparency.

Some markets are taking drastic measures amid the coronavirus. The London Metal Exchange plans to temporarily suspend trading on its iconic open-outcry dealing floor for the first time since World War II. It will however switch to electronic price determination.

Some smaller markets in Asia could follow the example of the Philippines in shutting down their bourses, according to market participants. However, despite the wild price swings, the Trump administration plans to keep U.S. trading open, Treasury Secretary Steven Mnuchin said.

“I’m totally against the idea” of closing markets “as liquidity needs to flow and a shutdown would create huge panic,” says Alberto Tocchio, chief investment officer at Colombo Wealth SA.

Similarly, Seema Shah, chief strategist at Principal Global Investors, is on the same page, saying prolonged closures would add to instability in the financial system, remove transparency and only compound market anxiety.

Closing markets may not even help. Post 9/11 terror attacks, Wall Street was shut for four days, which certainly seemed like a sensible measure. But it didn’t shield investors. The reopening triggered an immediate 13% sell-off, and the market continued to drop 30% in the 12 months that followed.

The Stoxx Europe 600 Index is already down about 33% since its Feb. 19 peak, so it’s probably too late anyway. With that thought in mind is there a buying opportunity now, if we’ve seen most of the downside?

UBS Asset Management thinks so, saying longer-term investors shouldn’t lose sight of the big picture, with overall economic imbalances in a much healthier position than prior to the Global Financial Crisis.

The money manager adds that expected returns for risk assets have increased as risk premiums have widened, reflecting near-term uncertainty.

Patricia Shin, head of execution at Kepler Cheuvreux believes we’re almost “80% done on the low end,” seeing the absolute low by end of April, when markets will start to recover after what could be a “50% retracement.” In fact, the current valuation ratio has now become historically attractive.

What’s more? Bank of America strategists showed in their latest fund managers survey that sentiment is close to the bear extremes of the financial crisis, while their Bull & Bear Indicator triggered a tactical contrarian “buy signal” for risk assets, the first since August 2019.

Countries have now taken strong measures, lockdowns in several European countries and borders shut. That comes on top of massive economic and monetary stimulus in Europe, the U.S., and Asia. What’s left to do? Wait and maybe seize the opportunity if you can tolerate volatility.

©2020 Bloomberg L.P.