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MUMBAI: Monetary easing is not appropriate to fighting en epidemic, said Christopher Wood, global head of equity strategy at Jefferies, in the wake of rate cuts by several central banks, including the US Federal Reserve and the Bank of England.
This also raises the question as to what form such action would take once the US Federal Reserve has got to zero, which could happen in a matter of weeks not days, said Wood in his weekly note Greed and Fear.
Money market futures are discounting another 75-100 bps of easing by the end of April.
However, Wood believes that the US Fed does not want to venture into the negative zone.
While that is sensible on economic grounds, negative rates would be politically explosive in the US, said Jefferies.
Meanwhile, Wood believes that the best hope on the coronavirus remains that it turns out to be seasonal, like the flu, in which case the markets are facing probably only two more months of panic selling.
Wood believes that the surge of positive coronavirus cases in Italy has raised the issue of whether western socialised healthcare systems can cope.
“It increasingly appears to be the case that the virus itself is less of an issue than the adequacy, or lack of it, of the healthcare infrastructure.
For how else to explain why 631 Italians have died and there is still not one death in Singapore.
This is why epidemiologists argue that the key goal is to try and slow the speed of infection over time, both to give healthcare systems more time to cope and also to come up with a vaccine,” said Wood.
Wood said China’s success in controlling the spread of the virus was the result of drastic measures where public health was put before economic activity.
The Hong Kong-based strategist said the growing likelihood is that such drastic measures such as travel ban will be introduced in the rest of Western Europe in coming weeks, and not just in Italy, but only after further panic has forced such measures.
Such actions will probably come later in North America because everything has been delayed there by the lack of testing, said Wood.
Wood recommends being long on China against either MSCI AC World or the S-P 500.
Wood has replaced cement company Dalmia Bharat in his Asia ex-Japan long only portfolio with China tech company Sunny Optical.
