Weekly View - Goodbye and good luck
With the number of those infected by novel coronavirus surging from 282 to over 17,000 in two weeks, the virus has now surpassed SARS in number of cases. In 2003 SARS, which infected 8,100 and killed 774, set quarterly growth down by -2% in Q2 03. We will continue to monitor the situation, but with the hit to retail sales and production and the cancellation of many flights to China, we can expect to see a real setback to growth, although to what degree and within what time period will depend on how the situation develops. We are positive on Chinese e-commerce companies, which should benefit from solid retail sales and shoppers staying indoors.
While Chinese markets were closed for the Lunar New Year holiday, in the US the Q4 reporting season progressed. Big tech companies stole the show with Amazon joining the one-trillion market cap club after reporting sales up over 20%. Apple also pleased investors, while Facebook disappointed on slowing growth. In the week ahead, US Democratic primaries kick off with the Iowa caucuses on Monday, with polls showing Bernie Sanders in the lead. In anticipation of increased market volatility that will accompany any intermittent victories for the more progressive Democratic candidates including Elizabeth Warren as well as Sanders, we added protection to portfolios last week by buying gold and put options.
The UK left the EU on 1 February. While the Bank of England kept rates on hold last week, it did downgrade the UK economic outlook. Although the UK will remain in the trading bloc during the transition period, once that expires at year end, the trade relationship that will replace it is far from clear. Boris Johnson seeks a loose, Canada-style trade agreement, which is a long shot. Advantageous trade deals beyond the EU are also riddled with challenges. Today the US is the UK’s (distant) second-biggest trading partner after the EU, and its current administration does not have a great track record when it comes to free trade. In our view, UK real estate—which is poised to benefit from Corbyn’s defeat, sterling and UK housing price corrections and emerging market investor inflows—presents the best opportunity in UK assets.