The historical correlations between various asset classes look disrupted as investors are finding it difficult to price risk to global growth due to the Covid-19 epidemic.
The impact of the SARS outbreak in 2003 may not serve as an effective proxy since Chinas contribution to the global gross domestic product (GDP) has increased four-fold since then.
As a result, investors are turning to safe haven assets to cover economic risks.According to Bloomberg Economics calculations, Chinas economy is running at 40-50 per cent of its capacity, and the first-quarter GDP growth may drop to 4.5 per cent, the lowest since 1992.The US dollar and gold, which typically move in opposite directions, are both on an upswing amid the search for safe havens.
This has resulted in the weakest negative correlation between these two asset classes in eight years.
Gold is at a seven-year high of $1,600 per ounce.
The dollar index, which tracks the performance of a basket of leading global currencies with respect to the US, has inched up to nearly 100 from 96.5 at the beginning of 2020.
The dollar is strengthening with a flush of money moving towards US assets, both in fixed income and equities.
The ratio of the MSCI US index to MSCI World index, excluding the US, rose to a record high of 1.6.The bond and equity markets too are rising in tandem.
The correlation between the US 10-year treasury yield and S-P 500 index has reached the highest level in a decade.
Moderation in the global economy implies that global central banks may turn more accommodative.
The probability of an interest rate cut by the US Fed during its meeting in the second-half of 2020 is more than 50 per cent.The demand for the Japanese yen often increases amid rising risks to economic growth.
This time around, however, bearish bets on the yen have risen the highest in 16 months on the expectation that the virus outbreak could put the Japanese economy in recession phase.Virus Impact12 Feb, 2020Coronavirus outbreak in China has hit supply chains across the world and India is no exception.
Indian importers of raw materials too are facing problems as China factories remain shut for some time now.
But the development has also brought some relief for domestic companies who competes with finished Chinese goods.
Santosh Meena, Senior Analyst at TradingBells believes that electronic equipment, organic chemicals, fertilisers and plastics are top import sectors which may benefit from fall China imports.Here are five likely beneficiaries of the reduced imports: Dixon Technologies | CMP: Rs 4,636 | 1-year target: Rs 5,50012 Feb, 2020Dixon Technologies is Trading Bells top pick in the electronic equipment segment.
"Make in India" theme is the key reason for the stellar performance of Dixon Technologies.
Synergy with marquee names like Samsung and Xiaomi is also a key factor for the vertical growth of the company.
The cost of production is increasing in China resulting in companies moving from China to India and Dixon technologies is a major beneficiary of this phenomenon.
The company has a strong order book for FY20-21.
A cut in corporate tax is also boosting the bottom-line of the company.
PI Industries | CMP Rs 1,540 | 1-year target: Rs 1,92012 Feb, 2020PI Industries is leading players in the agrochemicals space which is getting major benefits from falling imports from China of fertilizer and chemical products.
PI Industries is ready for multi-year growth in the CSM segment because of its enhanced R-D and supply scarcity related issues in China.
Recently, it has witnessed big product wins and a significant surge in the deal pipeline.
The company is in the mode of capacity expansion as management sees decent growth opportunities in the future.
Supreme Industries | CMP Rs 1,375 | 1-year target Rs 1,66012 Feb, 2020Plastic products are the major beneficiaries of falling crude oil prices.
Recently Supreme Industries has witnessed decent margin expansion amid a slow down in volume.
The future growth outlook is bright as management expects volume to pick-up, led by a revival in demand from packaging and plastic piping segment.
Pipes and fittings are likely to witness strong demand from the governments Nal se Jal Scheme.
The company witnessed strong demand from that scheme in Bihar and Uttar Pradesh.
IOL Chemical - Pharmaceutical | CMP: Rs 193 | 1-year target: Rs 25512 Feb, 2020API and chemical business is shifting from China to India after pollution control measures are taken by the Chinese government.
A recent fall in imports from China due to Coronavirus will lead to further growth in revenue and margin for Indian companies where IOLCP is a perfect play for both specialty chemical and API business.
It has a profit growth of 34% CAGR for the last 5 years with a ROE of 36%.
It has footprints in 56 countries and regularly supplying its high-quality products to major pharmaceutical players.