Virus sell-off could offer a chance to buy stocks

London — Global equities may be in turmoil amid fears about the spread of the deadly Chinese coronavirus, but JPMorganChase strategists say this could end up a buying opportunity.

While the sell-off in stocks could continue before the situation surrounding the infection improves, in the past such outbreaks led to a drop in share values of about 4.7% on average, the strategists wrote in a note. They retain a constructive view on world equities, adding that in the past, the more stocks have fallen on similar fears, the more they have rebounded later.

“Health scares, similar to the localised war campaigns, as well as the terrorist incidents, were historically buying opportunities, rather than the reasons for sustained selling,” wrote JPMorgan strategists Mislav Matejka, Prabhav Bhadani and Nitya Saldanha.

Volatility increased and global stocks tumbled on Monday after the death toll from the coronavirus climbed to 80 and infection spread to France and Canada, among other countries. Mining and travel shares were especially hurt, with metals prices plunging and China’s decision to suspend package-tour sales in an attempt to contain the outbreak weighing on travel and leisure shares.

JPMorgan strategists looked at the stock market reaction to past pandemics, including the 2003 SARS and the 2009 swine flu outbreaks. They note that these episodes didn’t lead to extended periods of equity selling and became buying opportunities “within weeks”, with indices rising 23% on average in the three months after the peak in global interest for the health scare.

Both the S&P 500 and MSCI all-country world index surged to records this month as 2020 started on a jubilant note amid optimism over the US-China trade deal. The elevated exposure of volatility-targeting funds in US stocks at levels last seen in the run-up to February 2018, had fuelled concerns in some quarters of the market, which for now at least are being borne out by events.

Bloomberg