From black swan to bubble: investors weigh coronavirus risks

NEW YORK (Reuters) – When worries over the coronavirus shook U.S. stocks out of a period of quiet trading last week, investors wondered if the outbreak was the “Black Swan” event that would trigger a sharp decline. Less than a week later, talk has turned instead to a market melt-up.

FILE PHOTO: Traders work on the floor of the New York Stock Exchange shortly after the opening bell in New York, U.S., February 6, 2020. REUTERS/Lucas Jackson/File Photo

After that brief swoon, the market made a roaring recovery, and there were also rallies in Tesla Inc, bitcoin and other assets often seen as barometers for risk appetite.

The sharp snapback has revived concerns among some investors that market participants are growing overly confident that easy money policies from central banks will underpin prices, despite serious risks to global growth from the coronavirus.

As of Friday, it remained unclear how deadly and contagious the virus is. Two deaths have been reported outside mainland China, in Hong Kong and the Philippines, prompting countries to quarantine hundreds of people and cut travel links with China.

There were 41 new cases among about 3,700 people quarantined in a cruise ship moored off Japan, taking the total on board to 61. Chinese-ruled Hong Kong quarantined for a third day a cruise ship with 3,600 on board. 

“There could be more downside if the (outbreak) spreads, but for now the trend is still up. The bigger risk is arguably that we end up in a mini-bubble,” said Troy Gayeski – Co-CIO of SkyBridge, an alternative investments firm.

Gayeski said that coming into the year SkyBridge had positioned its portfolio to take advantage of gains by using equity call options.

“We did put some equity call exposure in the portfolio coming into the year, because if one of

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