In this short Q&A, Teresa Kong, Portfolio Manager, provides her insights on the economic impact of the coronavirus and where she sees risks and opportunities, and why the current prices could represent a once in a decade opportunity to buy Asia high yield.

Q: From your perspective, what has been the impact of the coronavirus to the markets?

A: The coronavirus is the black swan of this decade. I would characterize the unfolding of the market crisis in five stages:

  1. China crisis—January to February
  2. Global crisis—February to March
  3. Dash for cash—March 9-19; margin calls and correlations converged to 1, catalyzed by the oil price breakdown
  4. Crisis Policy > response—March 19-April 3
  5. Policy response > Crisis—So far in April

Until a vaccine or a treatment is commercially available, I see market vacillating between stages 4 and 5. Risky assets will rise as the policy response is deemed to be sufficient to offset the income caused by the sudden stop of global economic activity and analogously, sell off, when policy response is deemed to be insufficient. Because we experienced such a sudden regime shift from expansion to contraction, most economic indicators are not providing a timely and accurate picture of the current state of the economy. As such, I expect we will stay in a period of high volatility for the next several quarters.

Q: Which asset class do you see as most risky?

A: We are most concerned about currencies as they are the most difficult to determine intrinsic value. Most emerging Asian currencies have not depreciated to the trough levels of the Global Financial Crisis (GFC), although the velocity of the depreciation has exceeded that experienced during the GFC. While the dash for cash has subsided, we still expect more capital outflows to be greater than inflows, leaving especially emerging Asian currencies still vulnerable.