InvestmentEurope is providing ongoing coverage of responses from the fund industry to developments linked to the spread of Coronavirus.
27/2 1220 UMT - Economic impact on Italy outlined
"Italian corporates should be relatively resilient to the Coronavirus outbreak. The Italian press and economists forecast their outbreak to just affect GDP by 0.2% causing a minimal effect to European wide GDP," commented Mondher Bettaieb-Loriot, head of corporate bonds and senior portfolio manager, Vontobel AM.
The large Italian corporates prevalent in credit indices are either Banks, Utilities and Telecom companies. All of these are essentially domestically oriented and non-cyclical, and are therefore less likely to suffer. They are also very profitable and the demand for their products should therefore hold. The current political climate is also more stable giving the current coalition Government the opportunity to address this temporary health weakness transparently and effectively.
It is interesting to note that when compared to normal Influenza statistics, the number of positive cases usually increase towards the end of February to peak in March and recede in April. Therefore, this can be used as a road map and would reinforce the temporary nature of this episode in Italy. Should this be the case and given that credit ratings are medium term oriented, we do not believe that this incidence would have any impact on longer term ratings at Italian corporates as the agencies typically award ratings through cycles.
"I am therefore comfortable holding Italian corporates as they are currently providing excellent carry for their credit fundamentals. I don't plan on increasing nor decreasing my Italian corporate exposure but hold it steady as it already represents an overweight of 7.5%. The names we hold are generally household names such as Assicurazioni Generali, Mediobanca, Unicredito, Intesa SanPaolo, Enel, and Telecom Italia," added Bettaieb-Loriot.
Finally, there should be no need for the ECB to further relax monetary policy on this temporary episode considering also the very strong and sufficient stimulus packages already ongoing namely the open ended quantitative easing programme, the re-investments, the tiering system for bank liquidity and the TLTROs. Although not our base case, should further measures be required, the ECB still has enough tools at its availability such as increasing their monthly purchases to address any unforeseen weakness that could develop. In short, we believe both the spring season and monetary stimulus will bring relief and recovery, enabling capital to continue to chase carry.
Patrizia Bussoli, who is responsible for heading the team of asset allocation products in the Italian asset management firm Pramerica SGR, says: "Italy is one country which has been pretty active in diagnosing the coronavirus outbreak , carrying out many more tests than in other countries. Therefore a positive feature, i.e. trying to diagnose to prevent a problem, has created uncertainty.
"Discovery the presence of virus has called for urgency measures with the aim of reducing the contagion effect.
"Lombardy is the area mainly impacted by the presence of the virus, and the measures so far taken to limit the contagion effect could have a repercussion on the economy. However, many companies, have reverted to ‘agile working procedures' therefore the impact would be in some services and activities that have been closed, rather than on the whole production chain. "
"Nevertheless, the problem is the ‘fear contagion' rather than the virus contagion which could impact travels, hotels, airlines and holidays activities in Italy."
"The growth impact estimated by Bank of Italy is around 0.2% of 2020 GDP. The extent of duration of the measures implemented to contain the problem, will make the difference on growth as well as the quality of information on the true riskiness of the virus."
"The recovery, once the phenomenon is settled down, should be sustained also by fiscal measures for companies and consumers. So far, The EU has declared that will set up some support for the health system for the countries that need it. Some pressure on the spread is a consequence of the uncertainty.
"However, Italy, has proved to be effective and active in dealing with the problem, which should be seen as a positive rather than a negative signal."
27/02 1150 UMT - Investors shun Japanese Yen in favour for Swiss franc amid COVID-19 panic
Gareth Gettinby, multi-asset investment manager at Kames Capital looking at safe haven assets. The COVID-19 epidemic started impacting markets a month ago, and investors have bought the US dollar and Swiss franc as safe haven assets, shunning the Japanese yen.
The Swiss franc was strong before the current viral outbreak as traders expressed concern about the euro - weakened by a series of disappointing economic data culminating in a sharp contraction in industrial production in December, and suspecting that Trump's antagonism towards US-designated currency manipulators will result in a range of measures designed to push the SFR higher. Add some classic risk aversion (borne of the virus) and small wonder that the SFR continues to rise. This situation might change as/when viral outbreaks occur in Switzerland; in the mean-time there seem few sellers.
Currently the situation in China, regarding COVID-19, seems to be improving. This could see activity there start to return to normal, much to the relief of European exporters. If this continues then a Euro recovery may follow through to SFR weakness, but until the threat of hostile actions from the US Treasury subsides, the SFR looks unlikely to come to much harm.
Alternatively if the World Health Organisation declare a pandemic then equities will fret afresh, and currency traders will position for decent upside in Swiss Francs.
27/02 1030 UMT - Value Partners sends medical supplies to Wuhan
Value Partners Group has made a donation of HK$0.5m toward efforts in fighting against the Coronavirus in Wuhan, China.
This includes purchasing medical supplies including ventilators, monitors and medicine, to support frontline services at Leishenshan hospital , an emergency facility built in response to the outbreak.
Yu Xiaobo, investment director and head of China Business for Value Partners Group, said: "Our medical supplies were received quickly at the front lines of Leishenshan Hospital and field hospitals, and play a role assisting both medical staff and patients. During this donation process, we received great assistance from Sinopharm group and its Hubei branch. The traffic control measures currently in place in Hubei, with the coordination by the leaders at all levels of the Sinopharm group as well as the transportation assistance provided, for which we are deeply grateful. On the basis of strict protection measures being in placed, Value Partners China team has already fully resumed work."
"Hereby, we would like to express respect to all doctors, medical personnel and staff who are fighting on the front line in this anti-epidemic campaign and at this juncture, reiterate our commitment to investing in Chinese enterprises."
Value Partners counts assets under management of some $14.2bn, and was one of the first to enter the mainland China market as a foreign fund manager in the early 1990s. In the last decade, the company has invested in multiple Chinese healthcare companies. Dato' Seri Cheah Cheng Hye, the group's founder, and Louis So, co-chairman and co-chief investment officer had previously made significant donations toward children's leukemia charities in China.