S&P 500 fell 35% from its late February highs and regained nearly 16% of its tumble in a week. FBM KLCI rebounded from its 11-year low of 1,207.80 to the latest reading of 1,322.66 (+9.5%) in two weeks on news of a massive stimulus plan and an oversold condition. At initial stage, markets went through their initial derisking and deleveraging phases in the initial drop. Now, markets  experience a relief rally. In next phase, coronavirus epidemic will play out in the real economy.

For better or for worse, "QE infinity" will address some liquidity issue to some extent. However, the issues of medical system failure, geopolitical challenges especially in Eurozone, corporate earnings, consumer spending, and manufacturing will not be resolved with a printing press.

Unemployment concern - for a start, some 3 plus million Americans filed for unemployment benefits, about 4.5 times larger numbers than before while Eurozone reported some 1 plus million job losses since Covid hits them. I believe that the crisis has not yet hit critical mass in United States. More countries like India, Japan are yet to join in this band-wagon which will cause an unprecedented demand shock for the global economy. Next to ask, if global stimulus package standing at US$3-4 trillion helps? While we can take a guess if stock market has reach its bottom, the real world businesses and workers are filing for bankruptcies and being laid off, it is not too difficult to digest the simple relationship between markets and global economy.

Bear market - which usually happen when markets fall more than 20% from peak. My experience suggests that bear markets are prolonged event. In the dot-com crash of 2000, the S&P fell 49% in two years. In the Great Financial Crisis, the market also took two years to fall 57%. With that, i hope i put in right perspective that bulls are making the argument that this is the shortest bear market in history!

Who are buying now? - Based on last 5 days of market activities, local and foreign institutions are still net sellers. They are facing fund redemption and more. Most of buyers are local retailers. Facing with business margin pressures, corporations will not have the extra cash flow required to purchase their shares. Can this rally be sustained?

Message from bond market - It has been telling us to be well aware of possible market correction as yield peaked in October 2018 while equities rallied. It sniffed out a recession before the epidemic and yet to suggest otherwise. In less than 2 weeks, the amount of distressed debt in US alone has doubled to a half-a-trillion dollars as the collapse of oil prices and the fall from Covid19 shutters entire industries.

I hope this short note throws some lights to current state of confusion. Take care and stay safe!

Chee Seng, Wong
CIO, Athena Advisors