Since coronavirus emerged, the upbeat performance of global equities financial markets has perplexed investors. The leading indices like Stoxx 600, S&P 500, and the Shanghai SE Composite Index are up on the year.
Simultaneously, the virus continues to spread rapidly globally with Iran, northern Italy, and South Korea being the most affected. Now, there is a rush to safety with gold surging to a 7-year high of over $1660.00 per troy ounce. Also, bonds are rising while yields are dropping.
Most professional market analysts and commentators express confidence that by the end of the year, coronavirus will already be subdued. They are convinced that the virus will not last into the spring and summer.
Also, the pent up demand will compensate for lost economic activity in early 2020. In the end, if this epidemic becomes protracted, governments will save the day.
The Chinese government is currently supporting its equities markets and offering relief to borrowers who would otherwise find it challenging to pay their loans. Also, the US Federal Reserve may lower rates according to minutes from its January meeting.
Could They Be Wrong?
The commentators’ confidence might be misguided since it is still too soon to determine the outcome of coronavirus. Also, it is still far from damaging compared to the SARS epidemic.
Manufacturing supply chains are quite complex, and if one component is missing, economic recovery will take longer. China is highly connected to the global economy accounting for 16% of the global GDP.
Moreover, it is the second-biggest importer and the largest exporter, according to the World Trade Organization.
For now, governments are limited in what measures they can implement to stimulate their economies since global interest rates remain at all-time lows, with most of them hovering in the negative territory.
Thus, governments are forced to utilize fiscal measures, including stimulus programs and tax cuts.
All this data suggests that the market might recover quickly. Keeping that in mind, investors are striving to find ways to focus on industries less reliant on manufacturing and commodities.
They are turning to IT as they protect themselves from losses by shifting to safe-haven assets resulting in surging gold prices. An important lesson from the last financial crisis is that people need to protect their wealth and future.
During times like this, Bitcoin and other crypto assets are highly appealing. Bitcoin maintains a strong correlation with gold with the extra benefits that it is easily divisible and transferable. Moreover, it has a hard cap that makes it impervious to inflation.
After a decade of competing narratives on whether or not BTC is a payment system, a currency, or a store of value, the narrative is grouping around another option, driving demand. Just like gold, it has also performed well so far this year, gaining 33%.