What a difference a week makes! Markets came roaring back last week regionally with Hong Kong, European and U.S. stocks leading the way. Hong Kong’s Hang Seng Index was +4.15%, the Euro Stoxx 50 was +4.10% and U.S.' S&P 500 were +3.10% respectively last week. The net effect after 2 weeks? The majority of the pullback sustained during the last week of January was recovered and put most investors back in positive return territory for 2020.

As a reference AQUMON’s client’s portfolios year to date are +0.6% (conservative) to 1.8% (aggressive).

 

 

Why did financial markets rebound so strongly?

Although everyone is happy markets rebounded, most investors were a little caught off guard with how quickly this happened. There were 3 main reasons behind the market snapback last week:

1) Continued positive sentiment



Investors felt the pullback 2 weeks ago was an overreaction and this was further supported by stronger than expected economic data out of the U.S. last Friday. 225,000 jobs were created in January (65,000 more than forecasted) and unemployment rate is at a 50-year low at 3.6% as per the U.S. jobs report.


2) Coronavirus impact viewed as limited 
 

At least for most of last week investors felt the coronavirus’ global impact was likely less than feared but Friday’s pullback was in part due to the market being spooked by the death of the doctor who discovered the coronavirus illness (Dr. Li Wenliang) and news of additional restrictions in Shenzhen (a key manufacturing hub in China). As of Sunday night there are reportedly ~38,000 cases of coronavirus diagnosed.  


3) Expectation that central banks will intervene if all else fails



After Chinese stock markets ended last Monday -7.2% swift efforts by the People’s Bank of China (PBoC) to provide immediate market stimulus and liquidity (injecting 1.7 trillion yuan ~243 billion U.S. dollars into its economy Monday and Tuesday) gave investors added confidence. Investors are currently betting on 1-2 rate cuts by the U.S.’ Federal Reserve (Fed) to further stimulate the economy in case the coronavirus further drags down global markets. Currently the Fed is not forecasting any rate cuts.
 

 

What should investors be aware of when looking ahead this week?  

 

Even with the strong market rebound this past week investors should be aware that we’re not in the clear yet. It is promising to see the Chinese government being so proactive to contain the coronavirus and stimulate their economy but it’s honestly too early to tell in regards to how long and how deep the coronavirus will impact China’s economy. Two things we’re looking at this week:

1) More color on the coronavirus and its impact on China

Early market estimates anticipate that China’s gross domestic product (GDP), a key measurement of the health of any economy, will likely come in at 4-5.5% versus an earlier forecast of 6% before the coronavirus outbreak. The baseline assumption by most analysts is that the strong actions by the Chinese government will bring down the new infection rate significantly by the end of March. If this is indeed the case then analysts anticipate markets to stabilize further. Chinese factories are set to reopen after the extended Lunar New Year holiday this week so we should get a better sense of the impact.

2) U.S. to address coronavirus market risk

U.S.’ Fed chairman Jerome Powell set to testify before the House and Senate committees on the state of the economy Tuesday and Wednesday this week and investors are closely watching to hear what their views on the impact of the coronavirus. With such a strong jobs report last Friday analysts are saying it might be hard for the Fed to signal any policy changes (particularly one to stimulate the economy. We will be closely watching.)
 

 

What does this mean for investors?
 

With traders being so focused on the coronavirus longer term investors can anticipate that there will potentially be more market volatility and systematic buying opportunities when looking ahead. In the scenario that there is positive progress in the coronavirus situation in terms of having it under control analysts expect the markets to snap back even stronger.

Thank you again for your continued support for AQUMON, stay safe outside and happy investing!

 

 

 

About us

As a leading startup in the FinTech space, AQUMON aims to make sophisticated investment advice cost-effective, transparent and accessible to both institutional and retail markets, via the adoptions of scalable technology platforms and automated investment algorithms.

AQUMON’s parent company Magnum Research Limited is licensed with Type 1, 4 and 9 under the Securities and Futures Commission of Hong Kong. In 2017, AQUMON became the first independent Robo Advisor to be accredited by the SFC.

AQUMON’s investors include Alibaba Entrepreneurs Fund, Bank of China International and HKUST.

 

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