Coronavirus: Market Temperature Check


Morningstar Equity Research  |   22nd Apr 2020  |   30 min read

Executive Summary
Near-term news is likely to get uglier, but increased collective effort globally is expected to lead to containment of the coronavirus outbreak sometime over the next nine months. We base our view onhistorical analysis of previous pandemics as detailed in our March 9 report, “Coronavirus: Widespread Disease but Drug Pipeline Progress.”

Experience with previous pandemics informs our assessment of a range of likely outcomes for global economic growth in 2020. We expect near-term impact to be savage, shaving off 2 percentage points from global GDP growth. However, we anticipate a vaccine ready to be deployed by mid- to late 2021, setting the stage for a return to normality. We expect a quick recovery of the global economy in 2021. The fast and furious monetary and fiscal interventions announced by central banks and governments globally provide enormous tailwinds for the world economy to grow above trend and undo most of the damage by 2024.

It has been difficult to keep on top of the rapidly shifting environment, but collectively we find more opportunities to buy than sell shares at the current level. Because this event presents a sharp short-term economic fallout for many companies, we think this crisis will certainly favor companies with economic moats and financial strength. We think there are a number of moaty names that investors should consider adding to their portfolios as well as heavily sold-down stocks that could see a good postvirus bounce.

In this report, we highlight 10 stock picks for each of the four main regions that Morningstar equity analysts cover: North America, Europe, Asia, and Australia and New Zealand. We can’t begin to suggest when equity markets may bottom out, but we like where we see good value versus risk. We also focus on answering key questions investors may have about the impact on specific industries. We discuss emerging trends and disruptions and assess the likely near- and long-term impacts of those issues.

 

Key Takeaways

  • We expect the coronavirus impact to be severe in 2020, with global GDP growing 2% below trend. This presents near-term downside risk to consensus earnings estimates and dividend yields.
  • However, markets are too pessimistic, extrapolating the weak economic outlook for too long. We believe a treatment is likely to take the edge off the coronavirus scare from late 2020, with a vaccine available as soon as mid-2021. An abatement in active cases coupled with treatment and vaccine breakthroughs are potential catalysts for a change in market sentiment.

 

 


This blog post is an extract from a research piece titled “Coronavirus: Market Temperature Check” on Morningstar Adviser Research Centre. Log in to Adviser Research Centre to read the full article or start your free trial today.

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