The stock markets have been setting new all time highs in the last week. Where earlier on, the markets became slightly nervous and did tick down between 2 and 4%, the markets heavily recovered. There is a general consensus that on every dip the stock market needs to be bought. And no one wants to miss buying the dip. Till it does not work anymore obviously. The interest rates are low and the central banks do time over time indicate they will keep the rally going. They are ready to ‘safe’ the stock markets from falling aggressively.
Corona affecting GDP growth China
Meanwhile the Corona virus will have a strong impact on the China GDP growth. China’s first quarter GDP growth can easily be hit by at least 1% point which would bring it around or below 5% on a yearly basis. That is a weak growth for China. In the last weeks, the economy of China has been running on only 1/3 of the capacity. Also, figures from Germany are showing that a recession is a realistic scenario in Germany. Though, US economic figures and company earnings have been strong, indicating that the US economy is not turning down at all.
Markets ignoring the Corona virus
Currently the stock markets does price in that the Corona virus is going to have very little harm. Personally I think that that is not the case. China has the second biggest economy in the world and will have a very weak year. China’s growth is already weakening for a while and I do think that investors do need to worry about the Corona virus. At least more than what they do know. People do all the time compare Corona with SARS. But in 2003 the Chinese economy was only 1/3th of today’s economy. During SARS the stock market did experience a heavy shock initially of 8-10%. I think we will still see a shock of Corona in the financial markets, when investors are going to assess the damage it has done and will do to China and the world economy. For the longer term I do not see many problems, but on the short/medium term I think it makes sense for the stock markets to do care. For some investors it might be a moment to take some profits and move to the sidelines.
These kind of situations will always bring nice opportunities as well. Quite often we see that in a market downturn all stocks, also the very good ones, might suffer significant losses. This brings strong buying opportunities.