from Zero Hedge
Submitted by Eleanor Creagh of Saxobank
Summary: The COVID-19 spread outside of China has sparked concerns the outbreak is evolving into a global pandemic, despite the WHO saying it is too early to re-classify. This has triggered a reassessment of downside risks which has seen a wave of selling wash across risky assets.
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The market flipped very suddenly from outright complacency to all out panic and risk assets were offered across the board as investors woke up to the realities of what has clearly been a huge mispricing of risk. Risk assets had been remarkably resilient in the face of a double whammy demand and supply shock ready to hit economic activity, with investors taking an optimistic view that the virus outbreak would be contained within China and an impending cocktail of fiscal and monetary stimulus would serve as a cure all. It is far from clear how effective monetary stimulus and tax cuts will be whilst people are quarantined, factories operate at reduced capacity and uncertainty prevails. As investors have reassessed the real impact of COVID-19, the simultaneous unwind in positioning has been violent, given the complacent positioning prior to the sell off and the increasingly stretched valuations which left the market over extended and vulnerable to larger falls as positioning flipped.