Two weeks ago I wrote that the market was too complacent in its view on the Coronavirus and last week in this report warned it was too early to go bargain-hunting. After a 12% fall in the Australian share market from its peak, it has paid to stay on the sidelines.
So, is it time to buy stocks? Yes, with caveats. The first is that the Coronavirus event will be punctuated by “relief rallies” amid ongoing market weakness, as we saw earlier this week.
Second, nobody knows how the Coronavirus will play out, so bargain hunters must be able to tolerate further price falls. This is arguably the biggest shock to the global economy and financial markets since the 2008-09 Global Financial Crisis. Talk of a quick, v-shaped recovery in the second quarter and business returning to normal is vastly overstated. Third, we are yet to see how third- and fourth-quarter effects from the Coronavirus emerge. For now, the market is focused on the health crisis and its effect on global trade. What happens when more events are cancelled, supply chains are reconfigured and business-investment plans cancelled? Or if a lingering virus sparks political and social unrest overseas?