[Expert Talk] Investing through crisis: Covid-19 Macro market update with Tian Yang from Variant Perception

Today’s guest is Tian Yang, Head of Research at Variant Perception – an independent research company on financial markets. Against the backdrop of global financial market sell-off triggered by Covid-19, we analysed the market reactions by segmenting genuine causes of concern vs panic reaction; we discussed lessons learnt from historical black swan events and how these lessons can be applied to the current situation; and how government policies can work together to avoid recessionary pressures created by Covid-19 and lastly, what should private investors do to seize opportunities in these uncertain times.

Key Takeaways

• COVID-19 is currently been interpreted as a one-off black swan event similarly to 9/11 and Gulf Wars; a helpful framework to think about panic-led market crash is an analogy to what happens in a typical bank run
• Coming into 2020, underlying leading indicators are quite resilient; they had been declining through most of 2019 and began bottoming out and turning up before Coronavirus hit the markets
• What is needed to shift the market sentiment and avoid sustained recessionary pressures is a combination of fiscal, monetary and aggressive healthcare policy; all three at once
• The book "Why Stock Markets Crash" by Didier Sornette is mentioned to illustrate the framework used to determine new market equilibrium after a large shock: the new equilibrium usually takes 1-2 months to happen where daily market volatility reduces from 4-5% to 1-2%
• During the recovery phase, differentiated impact by sectors is expected with manufacturing, industrial set to rebound the most, exhibiting a V shape recovery; consumer sector is expected to exhibit slower path to recovery as 1) coming into the crisis, credit availability was already not great 2) non-discretionary costs like rent, medical expenses can actually go up
• For private investors, it is advised to start identifying interesting investment opportunities but wait to see 1) the virus status level off and 2) the market daily volatility turned down to 1-2% which presents a better entry point
• As the old saying in the market goes: it's usually better to buy one day late than to buy one day early

Episode links

Variant Perception: https://www.variantperception.com/ “Why Stock Markets Crash” by Didier Sornette: https://www.amazon.com/Why-Stock-Markets-Crash-Financial/dp/0691175950