Coronavirus scares the markets. Trump wins impeachment.

Image credits: Zhou Tianxiao

The outbreak of the Corona virus in China caught markets around the world by surprise and markets reacted swiftly to the outbreak, bringing about a sharp correction to many Asian markets. The Chinese stock market is the most affected with the Shanghai stock index falling 9% in a single day. The China government also extended the Lunar New Year holiday to prevent the massive back to work migration and worsening the virus transmission process. After the holiday ended, many parts of China are still in lock down and many factories are still not back in full capacity with the exception of key industries required to combat the virus. The Corona virus also brought about a sharp disruption in global supply chain ranging from car makers to pharmaceutical companies. The stock market has rebounded since the correction as investors are heartened by the swift actions by the Chinese government believing that the impact of the Corona virus will be managed. Small industries which had been hurting since the US-China trade war were buoyed by a strong domestic demand before the virus outbreak but the Corona virus erased that small comfort as the virus has scared consumers off the streets , and crippling many logistic companies, which are still not functioning at full force, leading to a supply chain woes in the area of e-commerce. The full impact of the Corona virus on the economy will not be apparent until the focus on the disease ease off and companies start to count the damage to their businesses. Meanwhile, the longer the outbreak continues, the more impact it will have on the Chinese economy and the rest of Asia 


US market barely affected

After an initial fall in the stock market, the US stock market rebounded and reached new highs thanks to strong corporate earnings from US companies. The tech heavy Nasdaq held up well in the face of the Corona virus due to the nature of the industry and reached a new high. The resilience of the US stock market and the US economy shown in the China-US trade war has proven itself again as it has shown that the possible slow-down of the Chinese economy will has minimal impact on the US economy.

Trump wins impeachment trial

US president Donald Trump wins the presidential impeachment trial, first initiated by the US Democratic party with a predictable result. The Republican controlled US senate largely vote along party lines and the Democratic party failed to garner the two-third majority needed to impeach the President. The impeachment trial also barely damage Trump's approval ratings, with his ratings rising to all time high, thanks to his handling of the strong US Economy. It remains to be seen whom his opponent for the 2020 US Presidential Election will be, but Bernie Sanders and Pete Buttigieg are the forerunners of the Democratic race to become the presidential elect.

Our Portfolio Strategy

The portfolio held up well in the face of the threat of the Corona virus thanks to our heavy exposure to US stocks and US bonds. In fact, we registered a gain of 0.58% - 1.77% for the month of January. The CPF-OA portfolio did better due to a heavier exposure to technology stock by Franklin Opportunity fund. Healthcare stock didn't perform as well as fear that the healthcare sector will become the punching bag of the US presidential election due to high healthcare cost in US held back its performance, even in the face of the Corona virus.

There has been some suggestions that China equities could be a potential opportunity to get into given the sharp correction due to the Corona virus, but I feel that it is too premature at this point of time as the true economic impact of last year trade war and the Corona virus are not felt yet in Chinese economic numbers. It is also noted that the US China trade war is still on-going with companies still moving and diversifying their supply chain from China and the Corona virus has no doubt accelerated this process.