Equities headed for further slide

David Gaud, chief investment officer for Asia at Pictet Wealth Management reminds investors that the recent rebound in global stock markets was probably driven up by short-term reallocation, while there is still downward risk for equities.

Pictet is increasing its cash and underweight equities and bonds, said Gaud, warning that there could be mispricing in stock and bond markets.

The institution predicts the S&P 500 Index could further drop by 25 percent.

In terms of the factors that could trigger another round of selloff in the market, Gaud said those include worse US economic performance, a domestic demand shock in China and the globe, as well as a failure or disappointments in international coordination to stimulate the economy.

Pictet expects more mainland companies to seek domestic financing from overseas bond issuance given their rising overseas debt burden under the impact of the coronavirus pandemic.

The onshore market could be a backup for mainland borrowers as the interest costs are relatively lower than offshore bonds, said Gaud.

Pictet suggests caution over Asian high yield bonds as the virus impact is expected to last longer, warning that there could be more defaults and downgradings, especially for the triple B grade bonds, as well as the mainland real estate sector.

Analysts predicts slower global economic recovery after the virus is under control, rather than a “V-shape” rebound.

Chen Dong, senior Asia economist at Pictet Wealth Management, predicts the mainland economy could shrink by 10 percent from a year ago, while the GDP growth for the full year could be 1.2 percent. He also predicts the US growth this year would drop by 2.1 percent from a year ago.