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Quality Stocks Fare Better In A Crisis, Says Study

Quality stocks may survive the market turmoil of the coronavirus outbreak better than so-called ‘risky stocks’, a new study by Credit Suisse suggests.

7 October 2021

The new analysis of similar crises to the coronavirus has suggested that disease-related crises have longer average draw-down periods and slightly shallower rebounds than natural disaster-related crises.

“The coronavirus (COVID-19) outbreak is a humanitarian tragedy that is impacting hundreds of thousands of people and may continue to present a significant health risk for the foreseeable future,” the authors of the study ‘Trading a Crisis in Asia’ said.

“It is also having a growing impact on the global economy and global markets.”

The study looked at SARS and historical crises in Asia.

“In both the current situation and during SARS, so-called risky stocks underperformed and quality outperformed.

“One key difference between the two periods is the performance of value, which is currently lagging, despite having outperformed during the SARS period,” said Will Stephens, Head of QSS, Asia Pacific, at Credit Suisse.

He said major disease outbreaks typically saw a peak-to-trough drawdown of -5.2 per cent, relative to the broader market. This compares to a -3.8 per cent decline for natural disasters.

“Disease outbreak drawdowns tend to last around 35 days versus 28 days for natural disasters. Following a trough, disease outbreaks have seen 3.4 per cent average three-month relative returns versus 4.2 per cent for natural disasters over the last 20 years,” Mr. Stephens added.

The report also found that at of the end of February, the Japanese and Australian markets were experiencing the most significant impact from the coronavirus situation, while other regional markets were not yet in crisis periods.

“In Asia Pacific, only Japan and Australia are showing signs of being in a crisis period. That said, the situation remains fluid and the potential for further downside risks in other markets remains significant,” Mr. Stephens said.

“In general, investors should prefer low volatility, low beta, low turnover, high dividend and quality stocks amidst crisis periods. Our analysis suggests that using a minimum variance weighting scheme adds the most value during crisis periods,” he said.

Published 4 March 2020

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