From Virologists to Zombie Movies, Fund Managers Consult It All – Yahoo Finance

(Bloomberg) — Health academics, death-monitoring platforms and even zombie movies — these aren’t normal sources of information for investors trying to assess risks in markets. But these aren’t normal times, as the coronavirus outbreak triggers an unconventional hunt for insights about what to expect from a swiftly spreading epidemic.

Most fund managers simply do not have the models to track what threatens to be a global pandemic, leading them to turn to universities, world health bodies and even works of fiction, while at the same time playing safe by ploughing money into havens such as bonds and gold.

The myriad of potential outcomes — from a global pandemic that kills millions like 1918’s “Spanish flu” influenza to a V-shaped recovery if the disease peters out — makes following traditional data sources too slow and limited, leaving many strategists caught on the wrong foot. Funds are instead going straight to experts, akin to the way investors consulted pollsters and political consultants ahead of the tortuous series of Brexit votes in the U.K.

Dashboard of Death

Investors are now trying to manage their risks and work out how much of the slide in stocks and rally in bonds is reasonable given the escalation in virus cases from South Korea to South America. That has already pushed long-term U.S. Treasury bond yields to a record low, driven the Swiss franc to the strongest since 2015 against the euro and pushed gold prices to a seven-year high.

Unigestion SA is tracking the spread of the virus using data from the Center for Systems Science and Engineering at John Hopkins University, which has developed an interactive dashboard that charts the cases per country, total deaths and recovery rate.

“We are following the spread of the virus outside China closely, especially in countries with a high population density and less developed health-care systems,” said Salman Baig, a money manager at Unigestion. The investment company’s own “Growth Nowcaster” model does not see much of a hit to growth — so far.

And therein lies the rub. Market strategists have already seen their forecasts for the year-ahead destroyed by the virus, even before the full effects of the virus are seen in economic data. Societe Generale SA sent out a note to clients last week revising its call for the euro, saying that its currency views had “not had a good start to the year.”

Estimates for the economic impact of the virus vary wildly. Oxford Economics Ltd. reckons an international health crisis could be enough to wipe more than $1 trillion from global gross domestic product, while the International Monetary Fund currently thinks the virus will only force it to knock 0.1 percentage points off its 3.3% global growth forecast for 2020.

“We just don’t have enough data about the persistence of this to make an accurate forecast you can hang your hat on,” Simon French, chief economist at Panmure Gordon & Co., told Bloomberg Television on Tuesday. “This is why proper experts are so important. Proper experts — in terms of the medical sphere, rather than the economists, or the traders who have to translate that into what it means for the rational market reaction and the irrational market reaction.”

Unprecedented Reaction

The scale of governments’ attempts at containing the virus, from lockdowns in cities and travel blockades, is an “extreme reaction” that appears unprecedented, making it difficult to tell how quickly the global economy could bounce back, Richard Lacaille, chief investment officer at State Street Global Advisors, told Bloomberg Television.

For M&G Plc fund manager Wolfgang Bauer, who has a PhD in chemistry from the University of Cambridge, it’s worth being careful when it comes to how much trust to place in models so far, given the scatter-shot nature of the information available.

“The situation is evolving so fast that any attempt of a precise assessment of the wider implications is nearly impossible as the error margins are so high,” he said. “When valuations are so tight that the error margins are almost not existent, then any negative development or news — be it weak macro data, political risk flaring up or a ‘black swan’ like corona — can be painful. If I’m not compensated well for taking risk, I scale back.”