15,000+ New Coronavirus Cases: How Did Investors Respond?

Dear friend of AQUMON, 

Last week global markets continued to recover strongly despite Friday’s minor scare about COVID-19 (previously known as the coronavirus) cases in Hubei China spiking by 15,000 overnight from Thursday.

U.S. stocks continued their rally with the S&P 500 Index +1.58% last week and +4.62% year to date. Hong Kong/China stocks also rebounded with the Hang Seng Index +1.50% and China’s CSI 300 Index +1.80% respectively. Both regional stock markets are still in slight negative territory but have clawed back the majority of the pullback sustained in late January. Sector wise U.S. technology stocks have been on a major tear with the NASDAQ Composite Index +2.21% last week and 8.45% year to date.

As a reference AQUMON’s client’s portfolios returns year to date (as of February 14th) are +1.0% (conservative) to 2.8% (aggressive).

For SmartGlobal Max (investing into U.S. ETFs) clients please note that U.S. financial markets are closed Monday due to President’s Day so there will be no change to your portfolios on Monday.

Market Fun Fact: Monday’s upcoming U.S. public holiday “Presidents Day” was established in 1885 to commemorate the birthday of George Washington (the first president of the United States) and does not celebrate the birthday of all presidents. 

So what exactly happened that caused the spike in +15,000 new COVID-19 cases?

Thursday was the largest single day increase in cases of 14,840 since the outbreak started. The headlines scared financial markets for most of Friday before bouncing back late in the day.

As smart investors we need to look beyond the headlines and know why. The sudden jump in cases was due to a change in the way COVID-19 are now being diagnosed in Hubei China. Before Thursday most Chinese COVID-19 victims were being diagnosed via blood tests but this ran into 2 problems:

1) The lab tests took multiple days before they revealed diagnosis results.

2) They were already running into issues with shortage of blood testing kits.

So the Hubei Health Commission announced last Thursday they would start using computerized tomography (CT) scans to identify victims quicker because the CT scans could immediately reveal pneumonia-like fluid buildup in the lungs. As a result new cases suddenly surged by close to 15,000. 

This new way to diagnose isn’t without its issues because medical experts challenge that the CT scan method isn’t as comprehensive as traditional blood test method.

Why is this important to me as an investor?

Whether we like it or not as investors, financial markets likely in the short term will remain fixated to the developments of the COVID-19 and we will see increased market volatility as new information comes to light. What jumped out at us were:

1) How sensitive global markets are right now with a small change in the way they diagnosis COVID-19 in Hubei China causing a global level modest push to look for higher quality and safer assets by investors Thursday and Friday. 

2) There could be more upward spikes in COVID-19 cases coming because other provinces in China (beyond Hubei) have not made this diagnosis change yet.

It is important to note that this diagnosis change doesn’t necessarily mean the COVID-19 situation is worsening in China but more so that transparency on the true extent of its impact is improving.

What should investors be looking out for?

There should also be more guidance this week on the corporate level as U.S. companies such as Walmart, Hyatt Hotels and Norwegian Cruise Lines report Wednesday and Thursday. This should give us better indication on how deep the COVID-19 is impacting global earnings. Earlier indications by Cisco and Nvidia said they will likely be taking negative hits from COVID-19 particularly as this impacts their supply chains. Investors shouldn’t be scared off by this.

In mainland China Alibaba’s management last week gave us further insight into the COVID-19 situation. As expected all of Ali’s businesses that require on the sale of physical goods (for example food delivery Ele.me) they anticipate will likely see a decline in revenues this quarter. Consumer behavior is changing with Ali’s Hema supermarkets seeing a huge surge in demand for online delivery but they are currently limited by their ability to physically deliver the goods. As of last week they already saw people in large going back to work and logistics networks returning to normal operations particularly in the large cities. They anticipate that the recovery will translate into long term growth for Alibaba.

Beyond the headlines what we will be watching closely is how deep and how long the impact of COVID-19 is. If it turns out to be a multi-month bump in the road then chances are global investors will not pay it much mind and markets should continue to have momentum to trace upwards. 

Beyond the headlines what are global investors thinking right now?

 With U.S. stock trading in on the higher side of valuations at ~25.4 we see global investors positioning back into more cheaply valued emerging markets (EM) stocks.

According to Lipper after 2 weeks of outflows due to the COVID-19 they reported US$730 million flowing back into emerging markets exchange-traded funds (ETFs) this past week. As a reference, roughly 1/3 of the MSCI EM Index is weighted in Chinese stocks. 

So financial markets are not as bleak as some headlines would suggest.

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

Ken

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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