Join InvestSense Director Jonathan Ramsay and Andrew Hunt of Hunt Economics in this podcast as they discuss:
Are we getting a clearer picture of how the coronavirus is affecting the real economy?
Does it matter? Will liquidity and lower interest rate expectations just send markets higher just as, or even because, the economic fundamentals are deteriorating?
Where have we seen this divergence of prices and fundamentals before?
HighlightsAre we now getting a clearer picture of how the Coronavirus is going to affect world trade?
“I think we can we can start to do some better analysis but to be honest, inside China, we still have no idea what's going on with infection rates. They've changed the way they're collecting the data, and some of the provinces that have been the worst affected are no longer reporting the number of new cases. And I think the World Health Organization is in effect admitting this. We don't really know what's going on in China, the country is still in lockdown likely to remain so for several weeks. And from my own contacts, we know that it's going to be April best case before normal trade relations, trade routes start to reopen. I spent quite a lot of time talking to shipping companies and even ports in the UK this week. And it's pretty clear that we've got another six or seven weeks of economic disruption, even if the infection rates are coming down. And if they're not, then obviously that will be longer. Outside China, we're getting a better sense of how this disease spreads. I had a chat with somebody in Public Health, England, who talked about the actual transmission mechanism and so I think we understand much more about that, which means it's probably easier to contain outside China.
We've also seen some economic weakness out of Europe and the United States. To what extent do you think that is due to pre-existing conditions? Or has the catalyst been the slowdown in Asia? Or is it two things happening at an inconvenient time? “I think all things in economics are in interrelated. And there's been an inventory build in Europe, in Asia in the United States we've been talking about for some time. And a large part of that was the slowdown in Asia that occurred in 2018 and persisted through March of 2019. So that was always waiting in the wings. On top of that, we probably had a bit too much optimism in the corporate sector in the tail end of last year, they probably misread the signal from the equity markets and perhaps risk overstocking a bit in October and are trying to jettison those. ”
The market is clearly looking through this, but are they? Or is this a liquidity thing?"I think it's a liquidity thing. I did a little study earlier in the week, the first manic bubble that I covered in my career, which was the late 80s, Taiwan. And like most bubbles that started with a genuine story of pickup in exports a strong economy in 1986 87. By 88, the economy was slowing by 89 it was actually quite weak, but the equity market went up tenfold. And by the end of that, what you might call dirty cyclicals or textile companies were trading on 70 times earnings and complete divorce from reality, driven entirely by liquidity. And when you looked at the sources of liquidity growth in Taiwan, you saw the central bank was buying bonds, long before anybody called that quantitative easing. Interest rates were low real rates were negative, huge amounts of leverage amongst the investor community. And very little equity issuance, the corporate sector was more of a buyer of equity than an issuer of equity. And of course, all this sounds very familiar with what's going on at the US at the moment. We've seen the markets Teflon coated they've been an all missiles in the Middle East. The economic effects of the coronavirus have just taken as a reason that the Fed won't raise rates and in fact, I think the Fed may end up cutting rates this year if only to try and rescue the EU curve. So you can kind of see where the equity markets going and what's driving it and there are plenty of historical precedents ”
Comentarios