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market | IST

Expect panic selling in the market over next 4 to 6 weeks, says Christopher Wood of Jefferies

Coronavirus, which broke out in China, is spreading fast to the other countries, bringing down stock markets across the world. Christopher Wood, Global Head of Equity Strategy at Jefferies, on Wednesday said there is panic on the one side and pandemic on the other, therefore, there could be panic selling in the stock market.
Wood said: "The first key issue was China and whether they have got the Coronavirus under control, my base case is that the evidence suggests that the cases have peaked in China and in that sense I have been positive."
"However, the second big risk was whether the virus would spread out of China and also out of Asia. That is the risk I highlighted on Sunday and that is what has caused the risk off move in markets this week."
"To me, right now, the big risk for markets is if the virus shows up in due course in North America and that is what the market has begun to worry about yesterday."
"My base case remains that when the weather changes and we get out of the traditional flu season, the virus will burn out but clearly we have a potential for more panic selling on a 4 to 6 week view depending on the news flow. However the big thing that hasn't really happened yet, and that could happen is the spread of the virus into North America."
On India
He said: "On relative basis I am overweight India. Obviously one relative benefit for India out of what is going on in recent weeks is oil has declined sharply and the big decline in oil is almost wholly attributable to expectations of weaker demand on the back of the virus."
"So, I am happy to be relatively overweight India for now. The other positive at least up till present is that you still have domestic mutual fund flows in India. However the big negative on Indian remains what has been very weak growth and the relative strength of the Sensex is just concentrated in a few top quality stocks. So for India to become an interesting absolute return market, you need evidence of a capex cycle and that evidence remains missing in action."
On financial market
"From a financial market standpoint, what I have been saying since this virus came out to equity investors is that the best way to hedge this risk was to go long Euro-Dollar futures, that is to bet on the Federal Reserve having to start cutting rates again rather than sell equities in the midst of panic selling."
"If you go long on Euro-Dollar futures as a hedge the moment the news flow hit, that hedge would have worked and I still think that that is the correct hedge to have in place," Wood added.
On NBFCs
Wood said what the market wants to see in India is more aggressive action on the part of the authorities to clean up the issues in the NBFC sector in terms of the residential property market and in terms of all the stuck projects.
"I was last in India in December when fund managers in India were hoping for the announcement of the equivalent of an Indian TARP like the TARP the US announced back in the financial crisis."
"There have been various incremental policy actions announced by the RBI but we still haven't got what I would call the big banana like TARP policy which would make the market think that this whole issue has been sorted out."
"So unfortunately I don't see that policy catalyst in place yet and the current Indian government remains very reluctant to bail out parties on a wholesale basis. So the policy remains more incremental than the big banana that the stock market wants to see."