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What is your preferred source of safety from the Coronavirus?


By Giles Coghlan, Chief Currency Analyst at HYCM

Question of the day

This was a question on Bloomberg Market's Live this week. What are you looking at for safety in the current concerns over the coronavirus?

- Treasuries: One of the first 'go-to places'.
- Gold: Another quick go-to place for the value. Short term it makes sense for a quick spike, but longer-term the improving US outlook means that gains should be capped.
- Bitcoin: Sometimes mirrors gold as a digital 'gold', but for some investors, the jury is still out whether bitcoin is here to stay or the first flush of a changing digital age that may or may not be here. In our view, when investing in a safe haven on the coronavirus fears, we would favour gold over bitcoin every time. Is that just an unfair bias and unnecessary conservatism, or sensible? Anyone take the other view?
- Tech stocks: Seen as less vulnerable as industrials, finance or energy stocks. Perhaps long health stocks?

Other areas to look at

- Vanilla short on stocks? This was our preference last week. With equities getting hit, shorting the major indexes makes sense for a trade. We got into Nikkei shorts last week seeing the storm coming and risk looked pretty asymmetrical to us.
- Shorting travel and tourism stocks. Look for individual stocks particularly exposed to the fall out from the coronavirus.

Ok, that gets the conversation started, now over to our seasoned readers. What is your preferred source of value? Anyone here has a playbook from 2003 that they used? Our view from here is that the coronavirus fears have peaked. We took profit on our Nikkei future shorts yesterday when we saw the reaction of the MSCI Asia Pacific Index and the S&P500 when, during the 2003 SARS virus, they gained in value as the WHO declared SARS a global health emergency. See the chart below which shows the S&P500 fast out of the blocks shortly after the March announcement. It was March 12 when they issued their global threat announcement.

Our view is that a bottom is in place now unless the coronavirus is seen to be more deadly than SARS. Yes, coronavirus is contagious, but it is not as deadly, at present, as SARS.

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