Investment theses

Reviewed / updated: May 15, 2020

In this section we describe our view on financial markets (primarily the US stock market) and offer general investment themes.

• There is no obvious justification for the stock market being where it is now. However, nothing happens on its own and there is a reason for everything. The only explanation that seems plausible enough is that there is an asset relocation from US Treasuries to US stocks by sovereign wealth funds and governments of countries with large surplus in trade with the USA (primarily China) that lifted the stock from the brink of an abyss. US corporate bonds are at the peak, and the only way from there is downward. Also, with so much fiscal stimulus the US dollar is likely to soften and non-US investors would have to book losses on their US bond portfolios.
• The stock market is likely to retest the lows seen on March 23 and go lower.
• On the fundamental basis investment opportunities in Asian countries that have already overcome the coronavirus seem much more attractive compared to the USA. This disparity is further enhanced by the long period of underperformance of virtually all stock markets compared to the US. European equities after the coronavirus crises s crises is over should be more appealing on the fundamental basis, too.
• We do not trust announcements made by Gilead Sciences about the efficacy of their drug Remdesivir in coronavirus infection treatment. Their tests just do not confirm to some basic requirements and cannot be trusted. So, there is no effective treatment against the disease and no vaccine in sight. We are set for a prolonged battle with the virus, that not just kills people but also devastates economies.
• On the geopolitical arena we see a path for an escalation of the confrontation between the United States and China that in the future could also take the form of a direct military confrontation, though chances of this at present are very very low. More likely that not we are going to see much less reliance of Chinese manufacturing of goods and boycotting of China in all spheres. Also, it is quite plausible to see a colossal bill that the United States and other countries will put to China to pay for losses caused by the coronavirus.