Asset Allocation : monitoring the Coronavirus & its impacts

March 19, 2020

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Please note that until further notice, given rapid shifts in markets, we will update clients on the latest MAQS views via frequent Flash publications, and suspend the Monthly/Quarterly publications for the time being.


  • Tracking the virus: Number of new cases still rising rapidly in Europe. Daily growth rate gradually falling in Italy. US is next large economy to watch closely. 
  • Macro: First signs of significant economic disruption in the US. US corporates enter buyback blackout window until 24 April. In China, business/activity resumption continues gradually, but far from normal consumer habits.
  • Policy responses: Aggressive stimulus on the way: USD1.2tn of fiscal easing in the US (including USD500bn of cash payments to households). EU members pledge 1% of GDP at national level for 2020. Merkel hints Eurobonds possible. Most major central banks hit zero bound and restart QE aggressively.
  • Sentiment and systemic market stresses: Indicators of market stress rising but not unhinged. Sentiment still in ‘virus panic’ mode.


  • Fundamental base case: COVID-19 is eventually mitigated by drastic measures and by policy responses that avoid a systemic crisis, thus supporting a ‘U-shaped recovery’. The main risk to our base case is that the COVID-19 shock morphs into a systemic crisis that leads to a more severe global recession scenario.
  • Market dynamics indicators: Our temperature metrics are flashing ‘dark green’, typically a good contrarian ‘buy’ signal for risk. Our dynamic technical analysis suggests that we are still in a bullish cycle medium term, so a rebound is possible.
  • Asset allocation changes: After trimming our equity overweights in a risk management exercise, we then added conviction to equities again yesterday at better levels. We are now overweight US, EMU and EM equities (notably via call spread option structures in flexible portfolios). In rates, our core view is for higher yields, and we added to our underweight conviction in EMU bonds and remain long US inflation. Elsewhere, we cut our long CAC/DAX RV trade, cut our long USD/CNY trade, and have added to our long gold trade.