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Coronavirus and Markets: Sentiment Bigger Driver than Fundamentals in Near-Term

Markets have seen a sharp negative reaction to Corona virus news. The news sentiment has evolved daily leading to the market gyrations. We have tracked the overall market sentiment, specifically with regards to Corona Virus, on a daily basis. As the chart below shows, after a bit of a relaxation last week, the sentiment soured again over the weekend. As the markets opened on Monday, this negative sentiment stocked the market nervousness.

Source: EMAlpha.com

The chart below shows the MSCI World Equity Index over the last few days. The negative sentiment has directly fed the market capitulation.

Source: Bloomberg.com

Emerging and Developed markets have fallen. The chart below shows the performance of a number of emerging market equity indices.

Source: Bloomberg.com

Corona virus has spread in multiple regions beyond Asia by now – Italy, Middle East, and Brazil. It seems likely that the virus related sentiment will drive the markets for atleast some time now. How are hedge fund strategies doing with this backdrop? As the Hedge Fund Research HFRX Equity Index shows below, not so well.

Source: Bloomberg.com

How has the EMAlpha long/short equity strategy done?

The below chart shows the benchmark Sensex Index and the EMAlpha year-to-date returns.

Source: EMAlpha.com

The EMAlpha long/short strategy has delivered 3% YTD return versus Sensex’s -4% YTD return.

Research Team
EM Alpha LLC

For more EMAlphainsights on Emerging Markets, please visit https://emalpha.com/insights/. To know how you can use EMAlpha’s unstructured data on Emerging Markets for better investment decisions, please send us an email at research@emalpha.com.

About EMAlpha:

EMAlpha, a data analytics and investment management firm focused on making Emerging Markets (EMs) accessible to global investors and unlocking EM investing using machines. EMAlpha’s focus is on Unstructured Data as the EMs are particularly susceptible to swings in news flow driven investor sentiment. We use thoroughly researched machine learning tools to track evolving sentiment specifically towards EMs and EMAlpha pays special attention to the timely measurement of news sentiment for investors as these markets can be finicky and sentiment can be capricious.Our team members have deep expertise in research and trading in multiple Emerging Markets and EMAlpha’s collaborative approach to combining machine learning tools with a fundamental approach help us understand these markets better.

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