It’s been an interesting few days. In our view, based on new information including traffic and pollution readings, China appears to be recovering after the extreme measures taken to curtail the COVID-19 spread. According to CNBC on 3/2/20, “Location technology firm TOMTOM’s traffic index shows congestion levels picked up noticeably in most major cities on Monday to their highest levels since the virus outbreak. Public transportation systems have also gotten busier. Average daily passenger volumes at metros across the country reached 10.2 million last week, up 65.15% from a week earlier, according to data compiled by China Association of Metros.”
Not saying we’re a fan of pollution, but from an economic perspective, more activity is a good thing. Despite backward-looking data being worse than expected – a reading of 35.7 on China’s official Manufacturing PMI vs. an expectation of 45.0 on Saturday – looking forward, things should get incrementally better from here.
Perhaps China’s experience provides an encouraging roadmap for what might happen in the rest of the world. Remember, roughly 90% of the cases so far have occurred in China. And overwhelmingly in one province – Wuhan (we heard yesterday from a Wharton podcast that only 10 cases are now known in China outside of Wuhan). So, it’s safe to say that with better health care in places like the US and more time to prepare, we should expect a better outcome (less spread, fewer deaths) elsewhere. Let’s hope so.
On another front, Biden’s return from the dead and the “circling of the wagons” around his moderate candidacy has had a meaningful impact on sentiment. If his momentum continues, it means that a socialist in the White House becomes increasingly unlikely. Again, not making a political comment here, just a statement about market sentiment. Therefore, a “bounce back” in a reasonable period of time seems much more likely today than it did a two weeks ago. Also, eventually as they always do, investors are getting used to the news flow and are taking every new case announcement with a little perspective. These things, combined with the Fed’s pro-active emergency rate cut yesterday, may have put a limit on the downside in equity markets in the near future.
Not saying I, or anyone else can call the bottom; but, a little optimism is much needed right now.
The views presented herein are those of Validus Growth Investors, LLC (“Validus”) as of March 2020 and are provided for informational purposes only. Investing involves risk, loss of principal is possible. There is no guarantee that any historical trend illustrated above will be repeated in the future, and there is no way to predict precisely when such a trend might begin. The information is based on the economic and market conditions as of this date. The information is not intended as a discussion of the merits of a particular offering and should not assume that any discussion or information provided herein serves as the receipt of, or as a substitute for personalized investment advice from Validus or any other investment professional.
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