The new corona-virus that originated in China and swept the world has attracted the attention of most people, it had influence on the trend of many financial assets at the same time. Then what is the relationship between different financial assets and the plague?
- Stock indices and individual stocks. As far as the stock index is concern, the essence of stock indices is “multiple stocks in each industry / local currency”. We have noticed that many funds call for “the world belongs to the optimists” and “buy stocks”, but they are not really optimists. During epidemics or wars, the purchasing power of cash would fall sharply, as the prices of masks and household goods would rise in many countries. Assets, or productivity are the ultimate factor of society. Therefore, buying stock indices at the low price at present, it is not because companies will not be constrained in their production. The purchasing power of cash will eventually decline, no matter considering long-term inflation or short-term declines in purchasing power. Therefore, we can see that stock indices in many countries have rebounded sharply after falling sharply.
Second is individual stocks. Some of the companies are positively affected by the plague, including medicine and medical equipment (simple logic is directly related to) , online games and electronic commerce (based on the needs of the population isolation). The unknown influences include mineral mining and smelting non-ferrous metal processing (not dense crowd), while the extremely negative influences include catering, offline entertainment, offline education (the crowd).
- Foreign exchange. Currency markets during the plague are influenced by factors such as overall national strength, especially sanitation and medical technology and innovation, as traders fear that the spread of the disease would severely damage a country’s economy. Therefore, we can see a stronger dollar, stronger yen.
- Precious metals. In the short term, traders’ concerns about inflation and the need for a safe haven will push the precious metal, but this trend is not reliable for a long time. Further consideration of the underlying factors is needed in the medium term. The reason is that precious metal, as a third-party neutral currency, has a negative correlation with the strength of the world’s largest credit currency, the US dollar. If the epidemic continues to spread and the U.S. gets better at controlling it with advanced science, other countries get into trouble, the US dollar would get a big boost and gold would plunge.
Crude oil. The price of crude oil would be hit directly by widespread factory shutdowns and the reduced demand for travel. In addition, the boom in new energy seems to be accelerating the elimination process of fossil fuels, which is the reason why oil prices are becoming less sensitive to OPEC meetings. Moreover, the technical trend of Brent crude is even more terrible, with a high probability of falling below $50 in the short term.
In conclusion, some means of exchange that should be taken during the plague like:
- Long indices, do not short blindly.
- Short oil.
- Long US dollar (Optional).
- Wait the opportunities of precious metals, and do not trade emotionally.