Now is not the time for unrestrained optimism
Published: Mar 25, 2020 10:49 PM

A woman with a facial mask passes the New York Stock Exchange (NYSE) on February 3, 2020 at Wall Street in New York City. Photo:AFP

The unrelenting swings over the past few days across almost all types of assets seems a surreal experience for investors across the globe betting on risky assets. In a sign of self-mockery among Chinese investors that have lately taken a scary roller-coaster ride, full of thrills and agonies that reflect the real world they are living in.  

Now with a broad-based rebound in global assets under way ranging from stocks to non-dollar currencies, cryptocurrencies, gold and crude oil, after the Federal Reserve went all-in with its unlimited quantitative easing plan and the creation of several new funding programs in a desperate attempt to restore confidence in the coronavirus-hit US economy, is now the time for unrestrained optimism? 

A wise man would say no. 

Good news transpired when the White House and Senate leaders stuck a deal on an unprecedented $2 trillion relief package to combat the economic blow of the global pandemic, cementing belief that a shift away from an across-the-board selloff is in the making. 

Rallies have consequently been scored in global markets, with the Dow clawing back 2,112.98 points to settle at well above 20,000 points on Tuesday in its largest point jump since 1933. 

Confidence is returning to Asia-Pacific markets, with Japan's Nikkei index ending up 8.04 percent on Wednesday following a 7.13 percent rebound in the previous session.

A continued downward spiral in the US dollar index versus the strengthening of major non-dollar currencies including the yuan, plus a swift comeback made by the likes of bitcoin, has apparently revived hopes for embarking on a journey back to levels prior to the virus outbreak outside of China.

Regrettably, it's still a ways away from becoming fully optimistic, as the past few sessions - a hooray for staunch market bulls - would be no more than a reprieve from a correction that will not morph into a reversal until signs of fundamental changes emerge.

In the case of the coronavirus-induced crash that has been compounded by US stock market froth, it will not be until the US, on its way to becoming the new coronavirus epicenter, claims victory in its battle against the disease that the global market will eventually heave a sigh of relief. 

History shows that a drastic rebound for a few days that could recoup a substantial part of earlier losses might only be a prelude to a continued slide afterward.

An overstretched rubber band won't necessarily fully snap back. It could be the case that it only partially snaps back, although it may ultimately break entirely. 

Investors are finding the cautious optimism is vague and unpleasant, as they desire clear indications of whether to sell or not.

Global Times