How would you decide to restart the economy?

OPINION
How would you decide to restart the economy?

By Mohamed A. El-Erian
April 9, 2020


The tentative optimism in parts of Europe and the US about a turning point in the rate of coronavirus infection is encouraging more people to start thinking about how and when to restart economies. It is a crucial and complex issue involving an unusual range of risks, uncertainties, difficult judgments and trade-offs.

I certainly don't have an easy answer, and neither do people I talk to whom I respect greatly. With a view to generating ideas, how about collectively engaging in the following thought exercise?

Imagine you, as the leader of a liberal democracy, have to make the decision based on the following conversation among three sets of experts - which, for simplicity, we will aggregate into a single expert each on health, the economy and social behaviour.


Health expert: I have good news. Because of our social-distancing policies, we are seeing a turn in the rate of infection of citizens.

Social behaviour expert: That's great news, especially as I hear that more people are starting to wonder whether the huge disruptions to virtually every aspect of their daily lives were worth it. Adjustment fatigue is really setting in.

Economic expert: It's great news indeed. We need to urgently lift the sudden stop to economic activity. Unemployment is soaring. Even otherwise-viable businesses are facing bankruptcies. And our relief efforts are not just costing a lot, but they are less effective than we had hoped for because of the need for better delivery pipes. Can we start normalising economic activity as soon as possible?



"The longer we maintain this economic standstill, the more we risk turning an already unavoidable deep and sudden recession into a financial crisis and, with that combination, a multiyear depression."
Economic expert



Health expert: Not so fast! Yes, we are doing better, but we are nowhere near out of the woods. Immunity is at least a year away, if not longer, be it through a vaccine or herd immunity. Our ability to treat the ill is still limited essentially to just keeping them alive and comfortable as they fight this dangerous virus. We don't have proper drug treatments yet. And let's not forget the difficulty we have in identifying the asymptomatic carriers of the virus. Without that, we can't even think of effective tracking and tracing. If we lift social distancing now, we risk a dangerous relapse that will overwhelm our health system.

Social expert: Wow, that's well said. We would also risk a general loss of trust in medical advice. The government would lose credibility. And the risk of social unrest would increase.

Economic expert: Yes, but if we continue with the sudden stop, we invite multiplying short- and longer-term problems. Our economy, indeed our society, is not wired for social distancing. We are inflicting real damage that risks undermining not just this generation but future ones. The longer we maintain this economic standstill, the more we risk turning an already unavoidable deep and sudden recession into a financial crisis and, with that combination, a multiyear depression.

Social expert: You have a point there. We are worried already about the risk of domestic violence and a deeper opioid crisis.



  "Every day we gain is a big victory, and not just in terms of flattening the curve. We are also getting to know this terrible virus better, helping us in efforts to develop better treatments and vaccines.
Health expert



Health expert: You all have valid points. But every day we gain is a big victory, and not just in terms of flattening the curve. We are also getting to know this terrible virus better, helping us in efforts to develop better treatments and vaccines. Our testing capabilities are increasing, as is the supply of personal protective equipment, ventilators and other crucial material. And let's not forget about what we are learning from other countries that were hit before us, including on testing and post-crisis tracking. Time is in our favour. We are seeing an enormous effort by private industry, and not just pharma and tech.

Social expert: Tracking and testing? You mean this idea of a passport that would allow us to run a multi-track society, with one "safe" segment re-engaging in normal activities and another having to wait? This needs to come after we develop more buy-in for the intrusive method of granting and maintaining the passport, especially as we will have to do a lot of random testing and disseminate sensitive health information, not just about the coronavirus but also pre-existing conditions. It only works if we have broad-based buy-in and, even better, if there's a bottom-up effort that we can capitalise on. We are not China. We are a liberal democracy with more respect for privacy and individual rights. And we also have to be honest about the need to address both conscious and unconscious biases that such selectivity brings out, even if it's health based.

Economic expert: Can't we at least start with partial reopenings. The answer to unusual risk and unsettling uncertainty is not paralysis. There is risk in whatever we do. I would opt for opening up parts of the economy before it's too late to avoid the cure being worse than the disease.

Health expert: Yes, there are risks and uncertainties involved. And that's exactly why we cannot afford a relapse and the spike in infections and deaths that would come with that.

And if we reopen too early, households themselves may hesitate to re-engage in normal life. That would defeat the point of taking the risks in the first place.

Now it's up to you, the decision-maker. The best that these three experts can do is to offer you alternatives and to make explicit the trade-offs that come with them. And it's far from perfect, given that we are still operating in a fog-of-war context.

There are likely to be unknown unknowns and, with that, a high risk of collateral damage and unintended consequences - whatever decision you make.

Well, this is part of a generation-defining moment, and it's your decision. What's your call? .

Mohamed A. El-Erian is a Bloomberg Opinion columnist. He is the chief economic adviser at Allianz, the parent company of Pimco, where he served as CEO and co-CIO. He is president-elect of Queens' College, Cambridge, senior adviser at Gramercy and professor of practice at Wharton.

Bloomberg

Delusional: Investors are underestimating the economic shock the world is facing

OPINION

Delusional: Investors are underestimating the economic shock the world is facing

By Ambrose Evans-Pritchard
April 16, 2020


Investors are repeating the mistake they made all through February and early March. They are again underestimating the immense economic shock of COVID-19.

Can there be any parallel in market history to the surreal clash of narratives we saw this week?
Global bourses soared even as the International Monetary Fund painted a series of scenarios ranging from dire - the most violent slump since the Great Depression - to catastrophic, with all the potential chain-reactions spelt out in its Global Financial Stability Report.

Markets should not be counting on a swift recovery.

Yet Goldman Sachs tells us that COVID-19 is under control and the worst is over. "The number of new active cases looks to be peaking globally, projections of cumulative fatalities and peak healthcare usage are coming down," it says.

From this breathtaking premise, Wall Street's fashion leader argues that we should "look through" the Great Lockdown to sunlit uplands ahead, anticipating a further 8 per cent rise in the S&P 500 index by the end of the year.

We can disregard normal bear market rules. This time we will avoid the textbook sequence of events in recessions: a swift crash followed by a torrid buy-the-dip rebound, and then a slow downward grind over months as reality hits home, ending only in capitulation at far lower levels.

Authorities have spared us such a fate by rescuing everything immediately. "The Fed and Congress have precluded the prospect of a complete economic collapse," it says.

I agree that $US5 trillion ($7.9 trillion) of central bank QE, vast fiscal packages (10 per cent of GDP in the US), and blanket guarantees, have averted disaster. They have - in a disjointed way - bought time and given us a chance of emerging from this global sudden stop without irreparable damage to the productive system.

What is surely wrong is to imagine that this pandemic is a one-off shock lasting three months or so, followed by an early release from lockdowns and a swift return to near normality. The first glimpses of antibody data - such as Denmark's test on blood donors - show that we are nowhere near the safe threshold of herd immunity.

They confirm fears that the mortality rate is at least 1 per cent of infections and that therefore no democracies can let the virus run its course without overwhelming their health services and destroying their political legitimacy. The supposed trade-off between lives and the economy is an illusion. The most certain way to turn this crisis into a depression is to give up too soon, as Spain is already doing, and Donald Trump is itching to do.

We would end up in the worst of all worlds, with multiple waves, and another forced closure of the economy to avert a winter tsunami, requiring trillions more in fiscal relief.

The only viable path is to contain the virus - to drive the R0 transmission rate (the reproduction number that describes the intensity of an outbreak) below 1 - and hold it down by East Asian means of "testing, tracing, and isolating" as we shift from an acute phase to a chronic phase. We are not close to achieving this. We lack the testing infrastructure at scale - even in Germany - and little is being done to prepare the public for tracking surveillance.

"We need a vaccine. Until we get one, the stock markets are in cloud-cuckoo land," says professor Anthony Costello from University College London.

The IMF's most extreme scenario is all too plausible. It assumes the pandemic drags on, with a second outbreak in 2021. This would cause output to contract by almost a tenth and set in motion a "non-linear response of financial markets" - fund parlance for defaults and panic.

Public debt ratios would jump by 20 percentage points of GDP. The shock would push Italy's debt above 175 per cent of GDP. Ratios would rise to 155 per cent in Portugal, and to 135 per cent in Spain and France. In my view, such debt spirals among sub-sovereign borrowers would render monetary union dangerously unstable unless the EU faced up to its "Hamiltonian" moment and agreed to fiscal union. The evidence is that Europe is not about to do any such thing.

Markets are assuming that Germany and its northern allies may grumble but will always allow the ECB to keep covering Club Med fiscal deficits. But assumptions are treacherous.

The IMF prefers to dodge this minefield, but its Stability Report lists plenty of other weak links. For starters, "emerging and frontier markets are facing the perfect storm". Currencies have buckled. Foreign funding has been cut off. Outflows are running at twice the pace of 2008. Median debt is almost 100 per cent of GDP, much higher before the Lehman crisis. Most lack the fiscal firepower to backstop their corporate systems and to cover lost wages.

Global banks were supposed to be bullet-proof after boosting capital ratios but the regulatory buffers were never stress-tested for such a shock. They risk becoming the "amplifier" of the downturn as rising bad loans force them to pull back, starving the real economy of credit.

Even if the worst is avoided and there is no secondary financial crisis, there will not be a swift return to normal. Mohamed El-Erian from Allianz said the rescue measures offer liquidity but cannot prevent the slow burn of defaults. Nor can they kick start the economy when companies refuse to invest because they have no idea what is going to happen.

The market has yet to grasp that "we don't come out of this where we went in". Earnings are structurally damaged for years to come. Equities are not worth the same. Some 17 million Americans have lost their jobs in three weeks and the Great Purge has yet to run its course. Global unemployment rates will explode to politically dangerous levels if the pandemic is not properly contained.

The idea of a V-shaped recovery was overly hopeful three weeks ago. Clinging to that position today borders on delusional.

Telegraph, London

https://www.smh.com.au/business/markets/delusional-investors-are-underestimating-the-economic-shock-the-world-is-facing-20200416-p54kc3.html?fbclid=IwAR1OUYlAPihyMCNOtNqFj9Bud_V3_BgtsluU3mHjzhiy7If-B7ip2Hvkoro

WHO: Countries Need To Meet 6 Conditions To End Lockdowns

“You can’t replace lockdowns with nothing.”


World Health Organisation Director General Tedros Adhanom Ghebreyesus. CREDIT: UN Photo



KUALA LUMPUR, April 16 —- The World Health Organisation (WHO) released new guidance for governments looking for exit strategies beyond existing lockdown measures.

For many countries currently under lockdowns which have crippled or stalled economies, the answer of when and how to ease restrictions has not been easily answered or forthcoming.

“We understand that these countries are now trying to assess when and how to ease these measures,” said WHO Director-General Tedros Adhanom Ghebreyesus.

“The answer depends on what countries do while these wide measures are in place.”

Six criteria were identified in WHO’s guidance document to ensure that governments would be able to manage a controlled and deliberate transition from community transmission to a steady state of low level or no transmission.

Any government that wants to start lifting restrictions must first meet six conditions:

1. Transmission of Covid-19 is under control
2. Health systems and public health capacity are able to detect, test, isolate and quarantine every case and trace every contact#
3. Hot spot risks are minimized in highly vulnerable places, such as nursing homes
4. Preventive measures such as physical distancing and hand washing in workplaces have been establised
5. Controlled and managed risk of new import cases from travellers
6. Populations are fully engaged, understand and empowered to live under a new state of “normality”#

(# Most important:  (1)  An engaged population,   (2) the ability to test, isolate, trace and (2)  the health care system capacity to deliver the care.)

There must be a gradual process to prevent a cycle of new outbreaks.

“You can’t replace lockdowns with nothing,” said Dr. Mike Ryan, head of WHO’s emergencies programme. “We don’t want to lurch from lockdown to nothing to lockdown to nothing.”

“We need to have a much more stable exit strategy that allows us to move carefully and persistently away from lockdown.”

WHO has said that in most countries, it is too soon to get back to normal. Ending lockdowns prematurely in an attempt to restart economies could result in the reemergence of infections.

There are currently more than 2 million cases of Covid-19 worldwide and more than 130,000 people have already died.


By CodeBlue
https://codeblue.galencentre.org/2020/04/16/who-countries-need-to-meet-6-conditions-to-end-lockdowns/?fbclid=IwAR2Qc-KDRYuD9v2_zD4TpD_GuE0bDiOPLUa3cLDyT28XdxEpKweRWQ4CoDY

WORLD NEWS

APRIL 16, 2020
New Zealand's Ardern says many restrictions to be kept in place when lockdown ends


WELLINGTON (Reuters) - New Zealand Prime Minister Jacinda Ardern said on Thursday that significant restrictions would be kept in place even if the country eases the nationwide one-month lockdown enforced to beat the spread of the coronavirus.


New Zealand introduced its highest, level 4 lockdown measures in March, under which offices, schools and all non-essential services like bars, restaurants, cafes and playgrounds were shut down. A decision on whether to lift the lockdown would be made on April 20.

The measures were tougher than most other countries, including neighbouring Australia, where some businesses were allowed to operate.

Ardern said if New Zealand moves to the lower level 3 of restriction, it would permit aspects of the economy to reopen in a safe way but there will be no “rush to normality”.

“We have an opportunity to do something no other country has achieved, eliminating the virus,” Ardern said at a news conference.

New Zealand reported 15 new cases of COVID-19 on Thursday, taking the total to 1,401 in a nation of about 5 million people. There have been nine deaths.

Ardern said under level 3, some people could return to work and businesses reopen if they are able to provide contactless engagement with customers.

Shops, malls, hardware stores and restaurants will remain shut but can permit online or phone purchases.

Schools can open partially up to year 10 but attendance is voluntary, Ardern said, adding that for children who are able, distance learning is still the best option.

Funerals and weddings will be able to go ahead, but limited to 10 people. But they can only be services and no meals, food or receptions can take place.

“By design, Level 3 is a progression, not a rush to normality. It carries forward many of the restrictions in place at Level 4, including the requirement to mainly be at home in your bubble and to limit contact with others,” Ardern said.



Reporting by Praveen Menon; Editing by Raju Gopalakrishnan

Our Standards:The Thomson Reuters Trust Principles.

https://www.reuters.com/article/us-health-coronavirus-newzealand-idUSKCN21Y0B6

New Zealand cites new deaths in case against lifting coronavirus lockdown

Fri, 17 Apr 2020

WELLINGTON - New Zealand justified its tough lockdown policies despite a significant drop in the number of coronavirus cases on Friday, with officials citing two new deaths as evidence of the risk from lifting social restrictions too soon.

The country reported just eight fresh COVID-19 cases, the first single digit increase in weeks, taking to the total to 1,409.

However, the two new deaths took the death toll to 11, around half of which are linked to an elderly care home in Christchurch.

"This serves as a sombre reminder that we need to continue to stay home to stay lives and break the chain of transmission," Finance Minister Grant Robertson said at a news conference.

Offices, schools and all non-essential services like bars, restaurants, cafes and playgrounds have been closed for almost a month as part of New Zealand's "Level 4" lockdown. The government is due to make a decision on whether to extend, lift or ease the lockdown on Monday.

Robertson warned people not to expect a major change to the current restrictions, which also limit public movement.

"A little longer now on level 4 or level 3, is ultimately better for the economy than an early exit and potential return to lockdown," Robertson said.

New Zealand, with a population of just over 5 million, has reported fewer cases than other nations following its tough lockdown regime, but, again like others, has had to balance the economic impacts of the shutdown.

Several countries, including Britain, India and Australia, have extended social distancing policies over the past week, while others, such as Singapore and Japan, have reintroduced lockdowns after being hit by a second wave of COVID-19, the disease caused by the new coronavirus.




- Reuters

The Buy and Hold strategy may not always be the best investment strategy.

The Buy and Hold strategy may not always be the best investment strategy.

It is vital in stock investing to constantly check the company's fundamental well being, it's strategic direction, it's ability to manouver market downturn / sector specific challenges and it's growth prospects. Ignorance and negligence will cause damage to your wealth!
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The following are some large cap names in KLSE across various sectors that have had massive value erosion over the past decade.



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Did you invest in any of them? Can they turn around the tide? What about your investments? Have you checked if they can weather the recent crisis? Which other stock has the potential to be on this list?


Reference  Stockbit Malaysia

Website: https://my.stockbit.com
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Instagram: https://instagram.com/stockbitmy
Twitter: https://twitter.com/StockbitMy

Trump says ready to help end Saudi-Russian oil-price war

Publish date: Wed, 1 Apr 2020,


Washington: US President Donald Trump said Tuesday he was ready to help resolve an escalating oil price war between Russia and Saudi Arabia that has helped push crude benchmarks to 17-year lows.

The threat of a global recession triggered by the coronavirus pandemic had already hammered prices when Riyadh said last month it would raise exports after a production-cut agreement among top producers flopped in early March.

On Monday, Saudi Arabia said it would increase exports further to a record 10.6 million barrels per day from May, deepening a global supply glut as crude recorded its biggest monthly and quarterly price plunges in history.

Trump said he had spoken with his Russian counterpart Vladimir Putin and Saudi Crown Prince Mohammed Bin Salman by phone with the aim of halting the slide.

"The two countries are discussing it. And I am joining at the appropriate time, if need be," Trump said.

Saudi Arabia had been exporting around 7.0 million barrels per day under an output reduction agreement among a 24-member producer alliance known as OPEC+, which included Russia.

OPEC+ failed to reach an agreement on further production cuts to shore up sagging prices as the coronavirus battered the global economy last month.

Analysts say Riyadh is engaged in a deliberate long-term strategy to capture greater market share by pressuring its high-cost rivals.

"Saudi policy will not just drive more expensive forms of oil production out of the market; it will also make it harder for renewable energy to compete with fossil fuels," said Bernard Haykel, a Saudi expert at Princeton University.

The price war has also hit shale oil producers in the US, with Trump telling Tuesday's press conference that the production dispute threatened "thousands and thousands" of jobs.

In a letter last week to US Secretary of State Mike Pompeo, a group of US senators accused Saudi Arabia and Russia of waging "economic warfare against the United States."



- AFP

Hup Seng Industries - Have you stocked up on cream crackers?

Investment Highlights

We maintain our HOLD recommendation on Hup Seng Industries (HSI) and forecasts, but raise our FV slightly to RM0.88 based on 16x FY21F EPS (from RM0.86 based on 16x FY20F EPS previously). We value the company at a 3x multiple discount to its historical average of 19x to reflect its weakened growth prospects.

We believe HSI has temporarily benefited from the Covid- 19 pandemic as consumers stock up on staple food items with a long shelf life such as cream crackers amidst the month-long movement control order (MCO) period. We foresee a pickup in HSI’s sales in 1QFY20. However, its sales may taper off or even slump in 2QFY20 as consumers run down their excess supplies.
Meanwhile, we understand that HSI is operating at a reduced capacity during the MCO period. Despite being under the "essential goods" category, we understand that there are still certain operational restrictions.

However, we believe the company has been able to cope with the demand from its customers as it can draw down on its inventory of finished goods, which we estimate could last for 1–2 months.
Looking forward, HSI plans to strengthen its product quality, expand its product portfolio, improve its cost management and broaden its distributor network.

We like HSI for its dominant position in the local cream cracker segment (via Hup Seng Cream Crackers/Biskut Cap Ping Pong). However, the market for the product is saturated and competitive with low entry barriers. It is unable to fully pass on the ever rising costs due to the limited pricing power, resulting in margin squeeze. While the export market offers room for growth, it is even more competitive as it is crowded with low-cost producers from all over the region.


Source: AmInvest Research - 10 Apr 2020

AEON Credit Service - FY20 Within Expectations (Kenanga Research & Investment)

 Fri, 10 Apr 2020


FY20 CNP of RM274.4m (-20%) is within our estimate but full-year dividends of 31.5 sen missed target. We believe the on-going MCO will dampen prospects with lower consumer spending and repayments, with strong impact from its primary B40 customers. That said, the group is bolstered by a portfolio with strong asset quality (NPL: <2 10.0x="" and="" br="" but="" conservative="" could="" cut="" earnings="" from="" group="" lower="" more="" mp="" normalcy="" on="" our="" per="" returns.="" rm8.80="" sustain="" the="" to="" tp="" until="" up="" upgrade="" valuation="" which="" x="">FY20 met expectations. FY20 core earnings of RM274.4m (excluding sukuk distributions) made up 103% and 98% of our and consensus’ estimates, respectively. Although the final interim dividend of 14.0 sen raised the total payment to 31.5 sen, it is still below our earlier anticipated 45.0 sen, owing to our overly-bullish payout assumption.

YoY, FY20 total income grew by 12% to RM1.42b mainly from gains in net interest income (NII +15%). This was helped by a larger base in gross financing receivables (+20%), mainly from key auto, motorcycle and personal financing segments. However, net interest margin was softer at 11.7% (-0.7ppt), likely skewed by a poorer receivable mix in line with the group’s total portfolio growth. More prudent impairments were made from MFRS 9 which saw an increase in provision by 46%. On top of less favourable cost-to-income ratio (CIR) of 40.8% (+2.4ppt) and credit charge ratio (CCR) of 4.9% (+0.8ppt), core earnings registered at RM274.4m (-20%). On other key metrics, non-performing loan (NPL) ratio remained stable at 1.92% (4QFY19: 2.04%) while net credit cost ratio was higher at 3.41% (4QFY19: 2.16%).

QoQ, 4QFY20 total income improved by 5%, but this was mainly on the back of higher operating income (possibly from higher bad debts recoveries) while net interest income remained stagnant. Thanks to lower impairment allowances (-23%), core net profit rose by 15% to RM80.1m.

Trying to catch a break. Throughout FY20, the group has been coping with poorer reported earnings owing to the more stringent requirements set by MFRS 9. Going forward, the group looks to face more hurdles due to the Covid-19 pandemic. Locally, the implemented movement control order (MCO) is likely to gag receivables growth at least in the first quarter. While AEONCR is a Non-Bank Credit provider and does not need to adhere to the six months moratorium, it has offered to allow a one-month deferment of payment for its customers. Nonetheless, with the economic landscape being strained, it is probable that the group’s NPL ratio could be stressed, albeit presently at a low base of below 2.0%. This is especially so given the group’s high B40 mix which we believe constitutes at least 50% of the group’s customer profile.

Post-results, we cut our FY21E earnings assumption by 14% mainly on the back of more cautious receivables growth and credit ratios. Nonetheless, this still translates to a 2% earnings growth against FY20 as we anticipate a softer 1HFY21 to be compensated by a recovery in 2HFY21. We also introduce our FY22E numbers.

Upgrade to MARKET PERFORM (from UNDERPERFORM) but with a lower TP of RM8.80 (from RM12.80). In addition to lower earnings assumptions, we also reduce our applied valuations from 10.0x (0.5SD below 3-year mean) to 8.0x FY21E PER (1.5SD below 3-year mean). Our more conservative valuation is premised on the severely constrained market environment and we also do not discount the possibility of the MCO being extended beyond April 2020, which could further dampen sentiment. However, with dividend yields of c.4% which we view as sustainable, we recommend accumulating on weakness, for yield seeking investors.

Risks to our call include: (i) higher/lower-than-expected cost ratios, (ii) better/weaker-than-expected financing receivable growth, (iii) better/weaker-than-expected asset quality, and (iv) worsening pandemic impact leading to prolonged countermeasures (i.e. prolonged or enhanced movement control order).

Source: Kenanga Research - 10 Apr 2020

Berkshire Hathaway joins global debt splurge

Fri, 10 Apr 2020


NEW YORK: Berkshire Hathaway Inc priced yen-denominated bonds on Thursday, joining a global surge in debt issuance during the past month by companies facing a worldwide recession.

The multi-tranche debt offering of 195.5 billion yen (US$1.8bil) is the biggest bond offering by a foreign issuer in the Japanese currency since Warren Buffett’s conglomerate tapped the market in September.

While spreads on company debt have climbed everywhere amid the pandemic, they remain comparatively low in Japan and within ranges seen in 2019.

With economic activity in many nations being put on hold to contain the virus and save lives, borrowing costs for companies globally have surged as credit risks and rating downgrades pile up.

Berkshire Hathaway priced 10-year notes at a spread of 105 basis points, more than double the 50 basis points it paid to sell similar maturity notes a little over half a year ago.

Buffett, the chairman and chief executive officer of Berkshire Hathaway, said last month the effects of the virus and an oil shock were “a big one-two punch.”

While his company made a number of opportunistic investments during the financial crisis, it has avoided large acquisitions in recent years as US stocks hit record highs, leaving the firm with a US$128bil cash pile by the end of 2019.

Borrowers have been breaking debt issuance records in markets around the globe in recent weeks as they build out cash buffers to weather the recession and stockpile cash for potential acquisitions.

Almost 50 issuers priced about US$117bil in the US investment grade bond deals last week, shooting past a record set only the previous week.

The size of Berkshire Hathaway’s yen debt sale this time is less than half its inaugural 430 billion yen offering priced in September, which was one of the biggest ever by a foreigner issuer in the Japanese currency.

- Bloomberg

China to focus on domestic economy

Fri, 10 Apr 2020, 12:55 PM

BEIJING: China’s top leaders pledged to expand domestic demand to boost public consumption and investment as they see “greater difficulties” ahead with the pandemic threatening the global economy.

Governments at all levels should work to make sure the services sector can return to normal operations to encourage consumption, and also push for faster construction of investment projects, Xinhua News Agency reported, citing a politburo meeting chaired by President Xi Jinping.

The Wednesday meeting also called for more support for small businesses and the re-opening of shopping malls and markets.

“The Chinese economy is facing greater difficulties at the moment” as the continued spread of the coronavirus threatens global growth and adds to global instabilities, according to the report from the meeting. The current situation could continue for a long time and officials should be prepared to handle that, it said.

- Bloomberg

Rich Asians face billions in losses on structured notes

Fri, 10 Apr 2020

SINGAPORE: A popular investment among Asia’s wealthy in the years of rock-bottom interest rates has been upended in the recent market rout, leaving investors facing losses estimated to be in the billions of US dollars.

Structured products called fixed coupon notes attracted scores of private banking clients in Hong Kong and Singapore in recent years, according to half a dozen bankers and advisers Bloomberg spoke with.

Promised regular coupons even in turbulent times, some put 20% or more of their portfolios into the instruments, they said. One catch: the principal was tied to swings in assets like stocks, and losses could mount quickly during deep market declines.

About 5%, or more than US$80bil, of Asian private banking assets outside mainland China is probably tied to such notes, estimates University of Hong Kong Professor Dragon Tang.

They worked smoothly until Covid-19 struck. The promised payouts have since been dwarfed by capital losses as stocks slid and some leveraged holders were forced out of the illiquid notes. Others are hanging on, hoping a turn in sentiment restores their value.

“In a bull market, investors keep collecting coupons on these notes and they feel it’s a great investment, ” said Rahul Banerjee, an ex-Standard Chartered banker and founder of BondEvalue, a fintech that offers bond pricing services to investors.

“When the market turns, they get stuck with unimaginable losses, ” he said, estimating wealthy Asian investors are seeing losses in the billions of US dollars.

The products work well in a rising market or one moving sideways, where investors recover the initial investment and the coupon owed, which could be as high as 12% per annum.

But the interest-bearing notes, linked to the performance of underlying assets, open holders to the risk of steep losses if those assets fall below a preset level.

Some leveraged investors have been forced into selling early at steep discounts, according to investors who asked not to be identified speaking on private matters.

The loan-to-value offered for structured products including fixed coupon notes was over 50% on average, the people familiar said, though lending terms are being tightened given recent margin calls.

Those that continue to hold the notes may see their investments recoup losses in a market rebound.

After sinking 21% in the first quarter, the MSCI World Index has risen about 3% in April.

“Investors of structured notes are essentially writing put options, ” said Mary Leung, head of advocacy for Asia Pacific, CFA Institute, referring to derivative contracts where the seller agrees to buy an asset at a specified strike price.

“In Asia, higher retail participation in markets, the difficulty of accessing bonds and the hunt for yield drive the popularity of such products, ” she said.

One Singapore-based financial services professional, who asked to remain anonymous, lost between 30% to 40% of the US$400,000 he invested in fixed coupon notes tied to shares including Microsoft Corp, Broadcom Inc and India’s ICICI Bank Ltd.

The notes offered a coupon of about 10%, paid quarterly with a one-year maturity.

He sold the investment, which was leveraged up about 60%, prior to maturity after receiving margin calls and deciding he didn’t want the stress of monitoring daily prices and worrying about fresh calls from his bankers.

A second investor, who heads a family office in Singapore, said about 10% of his financial holdings were in notes offering yields of between 6% to 12%.

Those tied to energy and the automotive sector were in the red at the end of March, he said, though he remained invested in hopes of a recovery over the next few months.

Such products don’t offer good risk-adjusted returns, said Professor Tang, who has researched the 2008 implosion of structured notes called Lehman minibonds, which led thousands of Hong Kong investors to protest outside bank branches.

Disclosure rules have tightened since then and investors are now better-informed, he said, though there could still be some mis-selling.

New rules following the collapse of Lehman Brothers Holdings Inc included narrowing the scope of qualified investors - who must have about US$1mil to invest in Hong Kong and US$1.4mil in Singapore - and categorising clients into different risk tolerance buckets.

“Given the greater risk exposure of fixed coupon notes, we have de-emphasised the product in recent years, ” DBS Group Holdings Ltd said in an emailed response to questions.

For clients keen on the product, DBS’s bankers recommend structures which include their high-conviction stock picks or incorporate features that “act as safeguards against outsize losses, ” it said.

The attractions of high-yield offerings have been hard to resist.

A 2019 report by Asian Private Banker and Julius Baer Group Ltd. showed structured products made up 11% of client portfolios for independent asset managers in 2018, up from 4% the previous year.

Some 42% of non-exchange-traded investment transactions were in such products, according to a 2018 survey by Hong Kong’s Securities and Futures Commission.

The hunger for yield will persist as an impending global recession prompts a fresh wave of monetary stimulus and companies slash dividends to preserve capital.

- Bloomberg

Cashflow and monthly operating costs are key

Wed, 8 Apr 2020

AFTER watching Prime Minister Tan Sri Muhyiddin Yassin’s announcement on the enhanced stimulus package for SMEs, my various chat groups came alive with all kinds of comments and opinions. In particular, one chat group which comprises experienced retired senior bankers, entrepreneurs and senior business journalists (all about the same age of 60 and above) stood out for its wisdom and sharp foresight.

When asked about potential SME casualties in this economic crisis, a senior banker commented, “TH... I went through four deep recessions/business cycles, ie, 1987,1997,2007/8, and now 2019/20. Same like you, and no wiser than my friends in this group.

"My gut feeling is that there will be more casualties this time around because the pandemic is world-wide. But like all recessions, the economy will turn around. It will not likely be a V-shaped recovery. We all have to tighten our belts, cut losses, and make sure we survive to enjoy the recovery.”

He is correct, as this recession is like no other. It is the first time that almost all economic activities have stopped in all the major countries in the world at the same time. There is a supply shock as the supply chain has been completely disrupted to a standstill.

There is demand shock as sales of most industries have fallen off the cliff to almost zero during lockdowns, and there is capital market shock as global stock markets crash.

Predicting the timing of the recovery is extremely difficult as we now have to deal with a virus pandemic with no solution in sight. Yes, a complete lockdown can flatten the curve but the risk of a re-occurrence of a new wave of infections is very high when the movement control order (MCO) is lifted. Economic activities have to resume, so we will have to practise some form of restricted MCO for the next six months.

And this affects business.

Sales will continue to be very soft as consumption drops due to lower consumer confidence, higher unemployment and reduced personal income, as widespread paycuts are implemented. As in most recessions, not all businesses will do badly. From experience, consumers tend to trade down, ie, purchase lower-priced alternatives to sustain their lifestyle. Hawker stalls will continue to do well, while higher-priced restaurants will suffer.

The logical conclusion for SME owners is to focus on surviving the next six months. Once the moratorium on your loans ends in October, will you still be standing with the ability to start repaying them? Will you have sufficient cash flow to participate in the economic recovery which will probably start in 2021?

Your survival strategy till October will have to focus on two key issues - 

• cash flow and 
• monthly operating costs.

Managing cash flow 

> Sufficient banking facilities - Since all your loans have been placed under a moratorium (meaning that you won’t need to repay them for the next six months) by your bank, you will need to check if the balance amount of banking facilities will allow you to trade normally.

If not, quickly apply to your bank for additional trading facilities. If you have spare cash, it might be wise to start paying down your loan when you can and not wait till the end of October.

> Cash reserves - You will need to cover March and April losses from your cash reserves. Reduce your losses for the next five months through aggressive cost-cutting. Most businesses will face delayed collections so cash reserves, if available, will be most useful to cover cash-flow deficits.

> Wage subsidy - Expect delays in your claims as the government will not be able to cope with the massive influx of applications. If approved, expect delayed payments of at least a month in your cash-flow planning. The wage subsidy is only for three months but you need to survive the next six months. So, plan accordingly.

> Corporate tax - For companies that will definitely declare a loss in 2020, my advice is to write in to the Inland Revenue Board informing them that you will declare zero profits for the financial year-end 2020, and suspend all tax payments for future projected profits. There is no point loaning the money back to the government when you need it more to survive.

> Deferred EPF payments - Just like bank loans, EPF payments have been deferred for six months when you will have to restructure your payments with the agreement of the EPF. Do not consider this as savings. It goes into accounts payable, interest-free of course.

> Rental subsidy - The announced tax deduction for rental rebates of 30% for three months from April to June will be effective in encouraging private-sector landlords to implement only if double deduction is allowed. In times of need, business partners should help one another. This is how the Chinese business community has been built over the last 100 years in Malaysia.

This is probably the best Bank Negara strategy to help preserve cash-flow liquidity for businesses to continue trading. By allowing the banking system to prevent classifying non-payments after three months as non-performing loans (NPLs), businesses can breathe and continue trading for another six months. Individuals too have more cash in hand to offset the paycuts that will definitely happen. By end-October, Bank Negara must allow another restructuring of existing loans by another six months to businesses who will benefit from the economic recovery.



Reduce monthly operating expenses.

The survival of your company depends on the amount of cash reserves you have to fund losses in March and April and also losses to be incurred from May to October. So, it is imperative that losses are kept to a minimum in the next five months.

Losses are calculated after deducting expenses from net sales. Net sales is gross sales less cost of sales. So, if net sales are down, expenses must come down proportionately, which in this case might not be possible for companies which suffer a big drop in sales.

While your sales revenue is dependent on external factors which are beyond your control, to a major extent, you are in control of your own expenses. For most service companies, payroll forms the biggest portion of the monthly expense. This is normally followed by rental or in some companies, advertising and promotion.

> Rental - At the maximum, expect your landlord to give you a rebate of 30% from April to June. This means that you can factor into your expenses a reduction of 15% in rental payments for the next six months.

> Advertising and promotion - It has been proven in the last recession that companies that continue advertising and conducting promotional activities will sell more than their competitors who stop completely. You are advised to work with your media suppliers to get more bang for the same budget. I am sure the media companies will support you, as they too need sales and have excess inventory to give away.

> Office expenses, allowances and claims - Cut all the unnecessary frills that you can ill-afford. Not much but every penny counts. Spend some on healthcare, though, to look after the team.

> Wages - I have stopped comparing with the Singapore government’s wage subsidy plan because our government does not have sufficient reserves.

With the latest proposed enhanced wage subsidy, it looks like SME owners must take matters into their own hands. Some companies will enjoy reasonable support of up to 30% subsidy on the wage expense, while some will only enjoy 5% to 10%.

Do remember that this is only for three months. Why the government is not exempting EPF payments for six months is beyond my understanding. This will only translate to a higher paycut across the board.

I have an investee company where the senior management has given the board of directors a revised sales forecast, with sales revenue dropping by 20% against the 2020 budget. But no corresponding reduction in expenses was given.

I have replied that this sales forecast might not be achievable and that we should start looking at reducing our expenses, mainly the payroll, which is a massive portion of it.

I would recommend a minimum 20% paycut across the board, freezing all intakes, probably retrenching a few positions deemed not necessary and linking the paycut to sales. If the sales for May to October drop by more than 50%, then the paycut will be more severe like 30%-40% for those who earn above RM4,000. However, if sales recover to its original budget then the salary will revert to its original amount.

Different companies will have to tailor different strategies, depending on the sales performance of the company up to October. For companies where payroll forms the bulk of expenses, detailed human resource requirements must be considered.

Where possible, the fixed salary cost should be changed to a variable cost, as a percentage of sales. This will help minimise losses to a great degree and at the same time save jobs and keep your key employees employed.

Some form of right-sizing is required now. Where possible, eliminate jobs to reduce 10% of your current payroll. Then undertake a paycut of 20% to make total savings of 30%. Then, submit for wage subsidies to the government if your company qualifies, which will probably save you another 5% to 10% of your existing payroll. With immediate savings of 35% to 40% from payroll deduction, you can take your chances with the remaining five months, of which April is already a complete loss for you.

Then my entrepreneur friend asked, “What if the employee does not accept a paycut?”. My answer: “Nobody can stop this employee from leaving the company on his own free will.”

At this moment of truth, SME owners’ only objective is to save the company from going bust. Minimise the losses so that you can stretch your reserves till October.

At the next moment of truth in October, SME owners will have to decide whether to continue or close their business. Don’t forget that you still have deferred EPF payments and the loans with interest to pay off. You can avoid bankruptcy if your business is still alive in October 2020.

From one battle-scarred entrepreneur to all the young entrepreneurs and SME owners out there: “Stay alive today to fight the next battle tomorrow. And you will win again.”

Views expressed here are the writer’s own.



https://www.thestar.com.my/business/business-news/2020/04/08/cash-flow-and-monthly-operating-costs-are-key

When, and How, Does the Coronavirus Pandemic End?

By James Paton
April 4, 2020

With confirmed cases of Covid-19 globally exceeding 1 million and more countries going into lockdown to slow the pandemic, the emerging question is: “When will this all end?” The answer depends in large part on uncertainties about the novel coronavirus that causes the disease, including whether you can get it more than once and how quickly the world’s scientists might produce a vaccine. The cost and benefits of a prolonged shutdown and what different countries can afford, from both an economic and political standpoint, are factors, too.


1. So how does this end?
There’s a consensus that the pandemic will only end with the establishment of so-called herd immunity. That occurs when enough people in a community are protected from a pathogen that it can’t take hold and dies out. There are two paths to that outcome.

• One is immunization. Researchers would have to develop a vaccine that proves safe and effective against the coronavirus, and health authorities would have to get it to a sufficient number of people. 
• The second path to herd immunity is grimmer: It can also come about after a large portion of a community has been infected with a pathogen and develops resistance to it that way.

2. How do we manage until then?
For many countries, the strategy is to lock down movement to dramatically slow the spread, closing businesses and schools, banning gatherings and keeping people at home. The idea is to prevent a huge burst of infections that overwhelms the medical system, causing excessive deaths as care is rationed. “Flattening the curve” staggers cases over a longer period of time and buys authorities and health-care providers time to mobilize --

• to build capacity for testing, 
• for tracking down contacts of those who are infected, and 
• for treating the sick, by expanding hospital facilities, including ventilators and intensive-care units.

3. When can restrictions loosen?
The public shouldn’t expect life to return to normal quickly. Lifting restrictions too early risks inviting a new spike. Authorities in China began to re-open the city of Wuhan, where the pandemic began, two months after it was sealed off from the world, when transmission had virtually halted. But China’s measures were stricter than anywhere else so far, and at least one county has gone back to a lockdown. England’s deputy chief medical officer, Jenny Harries, said lockdown measures there need to last two, three or, ideally, up to six months. Annelies Wilder-Smith, a professor of emerging infectious diseases at the London School of Hygiene and Tropical Medicine, recommends restrictions stay in place until daily cases drop consistently over at least two weeks.


4. Then what?
A road map authored by a group of U.S. health specialists including former Food and Drug Administration commissioner Scott Gottlieb calls for an intermediate stage in which schools and businesses would reopen but gatherings would still be limited. People would continue to be encouraged to keep at a distance from one another, and those at high risk would be advised to limit their time in public. If cases begin to rise again, restrictions would be tightened. Their report, published by the pro-business American Enterprise Institute, is arguably more optimistic than the future envisioned by researchers at Imperial College London. Their models suggest that for at least two-thirds of the time until herd immunity is established, all households would need to reduce contact with schools, workplaces or the public by 75%. In any case, the widespread availability of testing is important in this stage. At the heart of the U.S. plan: at least 750,000 tests per week.


5. Why is testing so important?
This virus is wreaking so much havoc, not because it’s especially lethal, but because it’s insidious; many who are infected are well enough to go about their daily business, unwittingly spreading it to others. That makes it vital to test for infection widely in the population, and to test everyone with symptoms. That way, those who are infectious can be put in isolation and everyone they’ve had close contact with while contagious can be tracked down, tested and if necessary isolated as well, limiting the spread in the community. Another kind of test looks for antibodies to see who has already beaten the virus and is thus unlikely to be re-infected, at least for a time. Once widely available, such tests might enable people who test positive for antibodies to move about more freely.


6. Why does where you are matter?

Authoritarian countries such as China can impose stricter controls on movement and more intrusive means of surveillance, such as house-to-house fever checks, tracing and enforcement of quarantines, and are less vulnerable to pressure from businesses and popular opinion. That gives them powerful tools to keep the virus in check, so long as they are vigilant against imported cases. That’s a more difficult proposition for other nations. The poorest countries can less easily afford the economic losses caused by prolonged restrictions, and often don’t have the health infrastructure for extensive surveillance.


7. How long will a vaccine take?
Dozens of companies and universities around the world are working on it, but there’s no guarantee they will prevail. Vaccine development normally is a long and complex process that includes years of testing to ensure shots are safe and effective. In the coronavirus fight, some of the players aim to deliver a vaccine in 12 to 18 months, an extraordinarily ambitious goal. As well as using tried-and-true approaches, scientists are relying on new technologies, like those that add viral genetic material to human cells, inducing them to make proteins that spur an immune response. Some vaccine specialists believe governments, citizens and investors should temper their optimism. It’s not clear if the methods will work, that the timelines will be met or that companies will be able to manufacture enough shots.


8. What about the second path to herd immunity?
First, it would occur only if recovering from an infection leaves people with lasting immunity. It’s not yet known if that’s the case with the novel coronavirus. The portion of a population that would have to be exposed to the virus to establish herd immunity is also unknown. Generally, it’s high, for example 75% for diphtheria and 91% for measles. Patrick Vallance, the U.K. government’s chief scientific adviser, estimated the figure at 60% in February. How long it would take to reach the necessary threshold would depend on measures governments impose in response to the pandemic. Without tight restrictions, it would be faster yet come at a steep cost in illness and deaths as health systems would be overburdened. Some research assumes the actual number of infections is much higher than the confirmed cases. If that’s true, countries are closer to herd immunity than we know.


9. Are there other variables?
We could get lucky, and the virus could fade with the onset of summer in the northern hemisphere, where most cases are, just like outbreaks of influenza subside with seasonal changes. But it remains unknown whether warmer weather will play a role. Even if the outbreak wanes, it could return in the fall. Some are pinning their hopes on an ultra-effective therapy or a cure.



The Reference Shelf
Related QuickTakes on what you need to know about Covid-19, how it transmits, the quest for treatments and a vaccine, and the seasonality question.
Bloomberg News looks at the hurdles to development of a coronavirus vaccine.
The roadmap published by the American Enterprise Institute and the modeling done by Imperial College London.
An article in MIT Technology Review argues that the pandemic will change our lives, in some ways forever.
A commentary in the New York Times suggests the near future will be like a roller coaster ride.

https://www.bloomberg.com/news/articles/2020-04-03/when-and-how-does-the-coronavirus-pandemic-end-quicktake

COVID-19 Symptoms - Here is what you need to know. Please Observe Social Distancing and Stay at Home.

The lockdown only buys us time: to really defeat the virus we need mass testing now

Instead of endless mass isolation or just waiting for a cure, the UK needs a data-driven, targeted approach to coronavirus testing


SD Biosensor factory in South Korea

‘SD Biosensor, a company in South Korea, is making 350,000 test kits a day, but it is prioritising the US, United Arab Emirates and Indonesia.’ Photograph: Ed Jones/AFP via Getty Images


After squandering valuable time to prepare for the spread of Covid-19 in February and the first half of March, the government made a dramatic U-turn and put the country into lockdown two weeks ago. But amid the drama of shutting down our entire way of life – with kids out of school, shops closed and millions working from home – we appear to have forgotten that lockdown itself is not the solution to coronavirus. It is simply a means of slowing its spread and buying time – while we race to catch up.

The real question facing Britain now is how to most effectively make up for lost time: what can we really do to fight this instead of simply cowering in our homes and waiting for it to blow over? If things carry on much as they are now, one possible scenario is that we will find ourselves in an endless cycle of lockdown and release over the next year – while the population slowly acquires the virus and hopefully gains immunity.

From Chinese data reported to the World Health Organization, we estimate that

• roughly 80% of people who contract the virus will not need medical attention and will have mild symptoms (largely children and people under 40); 
• 14% will have severe disease including pneumonia;
•  5% will require critical care for respiratory failure, septic shock and multi-organ failure; and 
• 1-2% will die regardless of medical care. 

Therefore, the challenge for the government (in the absence of a vaccine or treatment) is to ensure that healthcare capacity is not overwhelmed; that while the virus is transmitted throughout the population, the 19% who require either hospitalisation or an ICU bed are able to access that care and survive.


The burden on the NHS will be tremendous, especially given concerns about lack of appropriate personal protective equipment, and this will have knock-on effects on other services it offers: routine surgery, cancer treatment, the ability to deal with emergencies such as heart attacks and strokes. The decision whether to extend lockdown will be made by looking at

• the modelling of NHS capacity in three weeks’ time as well as 
• assessing public willingness to comply.

In an optimistic version of the above, over the next three to four months an antiviral therapy would be discovered while we hold out for a vaccine. Antiviral therapies would give doctors an additional tool to treat critical patients with, while vaccines would provide a prevention measure so individuals can build up immunity and the necessary antibodies before being exposed to Sars-CoV-2, the virus that causes Covid-19. Effective therapies have helped with how we deal with HIV/Aids (antiretrovirals), malaria (antimalarials) while vaccines have been effective against measles, mumps and rubella. Repurposing a drug that has already been tested for safety in humans would be the quickest path, and clinical trials are taking place for antimalarial cocktails (chloroquine and hydroxychloroquine), remdesivir and plasma therapies, which involve extracting antibodies from recovered patients and injecting them into ill patients.


The endgame would be a vaccine that is widely available, effective and affordable. Currently there are about two dozen vaccine candidates, with several being tested on animals and one imminently due to begin testing on humans. However, time is the problem, as vaccines require three phases of clinical trials to test for safety, side effects and whether they actually work. It will take about a year to 18 months even if all goes to plan – and even then, given all countries would be looking to acquire the vaccine, manufacturing enough of it would present a further challenge.

But instead of quarantining the entire population (and assuming anyone could be carrying the virus), the most pragmatic way out would be via a more nuanced and data-driven approach of mass-testing 75-100,000 people per day. This would not be testing random people but rather those presenting with symptoms, and then tracing all of their contacts (household members, colleagues, flatmates) to ensure they are also tested. All those who are virus-carriers would be put into a mandatory two-week quarantine in their homes, enforced through tracking and fines. This will allow the public health community to identify where exactly the virus is, to break further chains of transmission and to keep case numbers low and within the NHS capacity limit. It would also allow most of society, and the economy, to continue on a somewhat more “normal” basis.


The testing capacity could be built up through using private and university labs, as well as working with South Korea and other partners to bring in rapid diagnostics as quickly as possible. SD Biosensor, a company in South Korea, is making 350,000 test kits a day and is scaling up, but currently is prioritising the US, United Arab Emirates and Indonesia. When a reliable antibody test is available, one that shows whether someone has had it or not, individuals with high likelihood of exposure should be tested to see what percentage of immunity has built up and ensure they can be kept in the workforce.

If we want to work towards the best-case scenario, then we need to

• place the highest political priority on acquiring the testing kits, 
• while drawing on apps and big data to support contact tracing. 

Through this path we can start quarantining only those carrying the virus, and not the entire population. The economy, society and health all win in this plan, and it seems the best way out of our current situation.

Prof Devi Sridhar is chair of global public health at the University of Edinburgh


https://www.theguardian.com/commentisfree/2020/apr/01/lockdown-buys-time-virus-mass-testing-coronavirus-uk?CMP=Share_AndroidApp_News_Feed&fbclid=IwAR2yDiBwqzVWpmA9ZxjzMgnNjKoh1I8lIuxo1DLnoZVC3n1Yw41bO_GUCFw

Beware of chasing bear market rallies, strategists warn

PUBLISHED MON, MAR 30 2020
Nancy Hungerford


KEY POINTS

• Attributing the recent gains in equities and emerging market currencies to extraordinary monetary and fiscal stimulus measures, Eric Robertsen, head of global macro strategy at Standard Chartered, warned clients that the risk-rally lacks sustainability.
• “The full extent of the economic fallout is still unknown, and equity and credit markets still face considerable risks from earnings, downgrades and regulatory changes,” said Robertsen in a note.
• Daniel Gerard, senior multi-asset strategist from State Street, agreed that more information is needed from corporations before declaring a bottom. “No one has real insight yet into the impact into earnings, the fundamental drivers of markets here, that’s the next stage to come,” he said.

Investors in Asia are kicking off the new trading week with a note of caution, keeping an eye on volatility emanating from Wall Street.

Following the Dow’s biggest weekly rally since 1938, and the best performance for the S&P 500 and Nasdaq on the week since 2009, investors are debating whether U.S. markets have already bottomed or if more pain is in store.

Attributing the recent gains in equities and emerging market currencies to extraordinary monetary and fiscal stimulus measures, Eric Robertsen, head of global macro strategy at Standard Chartered, warned clients that the risk-rally lacks sustainability.


Consumer confidence hit

“The release of Q1 brokerage statements over the next month will coincide with the release of global economic data showing the depths of the economic collapse,” Robertsen explains in his weekly note. “We believe these two factors combined will exacerbate the weakness in consumer confidence, already under attack from the growing health crisis and the prospect of extensive unemployment.”

He pointed out that while the market declines have been well publicized, these first quarter statements will put “negative returns in black-and-white print” for retail investors. The losses incurred on traditionally safe investments will also hit home, Robertsen suggested, pointing to a recent 5% to 15% decline in exchange-traded funds tied to U.S. credit markets.

The full extent of the economic fallout is still unknown, and equity and credit markets still face considerable risks from earnings, downgrades and regulatory changes.

Investors are waiting on a deluge of economic data this week stateside that could fuel economic gloom. The focus will be on the weekly jobless claims due Thursday, after the prior report revealed a record 3.2 million in claims for the week that ended March 21. The monthly non-farm employment report is due Friday, but is expected to have less significance since the survey will not yet reflect the major shutdowns in the states most impacted by the virus.


Unknown risks

“The full extent of the economic fallout is still unknown, and equity and credit markets still face considerable risks from earnings, downgrades and regulatory changes,” Robertsen said. “For equities and credit, for example, we believe the hit to corporate profits will last longer than the immediate shock of the health crisis.”

No one has real insight yet into the impact into earnings, the fundamental drivers of markets here, that’s the next stage to come.

Addressing arguments that a 25% peak-to-trough drawdown has already priced in a worst-case scenario from these missing variables, Robertsen said: “We believe this sentiment is premature.”

Daniel Gerard, senior multi-asset strategist from State Street, agreed that more information is needed from corporations before declaring a bottom.

“No one has real insight yet into the impact into earnings, the fundamental drivers of markets here, that’s the next stage to come,” Gerard told CNBC’s Street Signs Asia. He credited central bank and fiscal stimulus measures with taking some of the fear out of the market and allowing participants to get back in.

However, he cautioned that this would not lead to a straight line higher from here.



No sign yet of a strong rebound

Vishnu Varathan, head of economics and strategy at Mizuho Bank, questioned if the stimulus-induced upside for risk assets has already run its course.

He predicted that revenue shocks from coronavirus-related containment measures, as well as supply-chain disruptions, would continue for the foreseeable future.

“The bad news could be seeping in, whereas the big bazookas are done with. The shock and awe of policy is about climaxing right now, and there is still not a good sign of a very strong rebound coming through,” Varathan told CNBC’s Street Signs Asia.

Robertsen looked back to the global financial crisis as a lesson in policy-induced rebounds. “Don’t forget that equities bounced in November 2008 when support measures were announced, before trading down to new lows in March 2009. Only then did the recovery begin.”


https://www.cnbc.com/2020/03/30/beware-of-chasing-bear-market-rallies-strategists-warn.html?fbclid=IwAR1sEiaZiQog6-V-SeTaPnTM74qSc2IbaOAOtIb5-_EzHP2cruiYslgyRFU

THE MAJOR INDICES REMAIN MILES BELOW THEIR PRE-PANDEMIC LEVELS.

Despite an unprecedented response from global governments and central banks, the major indices remain miles below their pre-pandemic levels. 

 MAR 27, 2020, 5:33 PM

While the late-session selloff on Friday wasn’t pretty, the major indices held on to most of their mid-week gains, giving hope for bulls that last week’s lows might be successfully defended.  

We saw a textbook risk-off shift on Friday, with utilities and healthcare stocks performing well and tech issues and industrials struggling together with the energy sector, but technically speaking, last week’s lows look safe, for now, which is already a huge plus for bulls.

The major indices all finished significantly lower following one of the strongest three-day rallies in history, despite the approved U.S. stimulus bill, as the global COVID-19 situation continued to deteriorate. 

The Dow Jones Industrial Average (INDEXDJX:.DJI) was down 915, or 4.1%, to 21,637, the Nasdaq (INDEXNASDAQ:.IXIC) lost 295, or 3.8%, to 7,502, while the S&P 500 (indexsp:.inx) fell by 89, or 3.4%, to 2,541. Decliners outnumbered advancing issues by a 3-to-1 ratio on the NYSE, where volume was extremely high again.

Bulls Make A Comeback

Following one of the worst week's for stocks in history, bulls staged an epic comeback this week, with the Dow gaining over 16% in three days. Despite the rally, which was fueled by an unprecedented response from global governments and central banks, the major indices remain miles below their pre-pandemic levels. 

The uncertainty regarding the length of the necessary, but economically damaging global lockdowns continues to weigh on risk assets, and equities finished the week on a negative note. Volatility will likely remain very high for several weeks, and bulls hope that we will get positive reports from Europe, and there won't be secondary outbreaks in China and South Korea.

The Fed’s unlimited QE program and emergency rate cut helped investor sentiment this week, but the economic uncertainty led to continued pressure on credit market. 

The key economic releases were mixed yet again this week, but several indicators still didn't fully reflect the effects of the pandemic. 

The week will likely be remembered because of the record number of new jobless claims, as the measure came in at 3.283 million eclipsing even the pessimistic consensus estimate of 1.5 million. 

Services PMIs hit record lows in Europe and Australia, with the U.S. Market services PMI also coming in well below expected, but the key manufacturing PMIs beat expectations, just as durable goods orders, personal income, and new home sales.

https://www.valuewalk.com/2020/03/fed-unlimited-qe-program/

Technical Picture Remains Bearish

The technical picture continues to be bearish across the board, despite the mid-week surge in stocks, with all of the key trend indicators still pointing lower. 

The S&P 500, the Nasdaq, and the Dow are still all well below their declining 50-day averages, and the benchmarks are also all below their 200-day moving averages. 

Small-caps finally showed relative strength during the crazy short-covering rally, but despite its positive week, the Russell 2000 closed below both its short-and long-term moving averages on Friday. 

The Volatility Index (VIX) only finished slightly lower despite the double-digit gains of the major indices, and the fear gauge closed the week above the still extremely high 65 level, due to the economic uncertainty.

Market internals improved substantially thanks to the broad rally, but even though a V-shaped recovery is not impossible, the current positive divergences have to be taken with a grain of salt in light of the extreme market conditions. 

The Advance/Decline line bounced back sharply this week, as advancing issues outnumbered decliners by a 15-to-1 ratio on the NYSE, and by a 14-to-1 ratio on the Nasdaq. 

The average number of new 52-week highs was close zero on both exchanges, edging lower to 1 on the NYSE and 3 on the Nasdaq. 

The number of new lows collapsed in the meantime, falling to 130 on the NYSE and 125 on the Nasdaq. 

The percentage of stocks above the 200-day moving average increased somewhat thanks to the strong rally, but the measure remains near its multi-year low, finishing the week at 9%.

https://www.valuewalk.com/2020/03/fed-unlimited-qe-program/