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Coronavirus

Bargain hunters quietly defy coronavirus sell-off in Japan

Foreign-favorite blue chips Shin-Etsu and Makita make gains amid gloom

Stocks have typically rebounded within a month of a disease outbreak.   © Reuters

TOKYO -- While the world is on edge over the outbreak of the Chinese coronavirus, bargain hunters in Japan's stock market are following the adage that a crisis always holds an opportunity.

In a sign of this undercurrent, Shin-Etsu Chemical -- the world's leading supplier of PVC and silicon for chipmaking -- climbed more than 3% Friday. Power tool manufacturer Makita closed 11% higher while Fanuc, a maker of industrial robots, rose for the third straight session.

All three have foreign ownership ratios ranging from nearly 40% to almost 50% -- a high level for Japanese companies.

Stocks depressed by the outbreak through no fault of their own offer "opportunities to buy the dip," said Hisashi Arakawa, investment manager at Aberdeen Asset Management.

The sentiment is echoed by Hisashi Iwama, fund manager at Asset Management One. "It may be about time to increase positions in Japanese equities," Iwama said.

The new coronavirus has spread to at least 20 countries and killed over 200 people, yet an undercurrent of buying is supporting the stock market.

Lessons from past crises have informed this trend. Isolated military conflicts and natural disasters have shown little evidence of triggering global recessions, and bear markets within such environments often are viewed as buying opportunities.

This experience applies to diseases as well. Starting with HIV in the 1980s, global equity prices recovered within a month in 13 epidemics as measured by the MSCI World index, an analysis by Charles Schwab shows.

Stocks rose 3.1% on average three months after an epidemic, then 8.5% after six months. Severe acute respiratory syndrome, or SARS, and the Iraq war dominated headlines in 2003, but equities rose 20% in half a year.

Even if economic growth were to falter during one of these periods, the promise of government stimulus would tend to outweigh recession worries as a driver for stocks. During the SARS epidemic, the government of Hong Kong delayed budget-balancing goals by two years to prioritize reviving the economy, while China eased up on tight monetary policy.

Analysts have started to anticipate the supporting hand of government this time around as well. John Woods, Credit Suisse's chief investment officer for the Asia-Pacific region, said China's government could take such steps as increasing infrastructure investment and cutting interest rates, noting that the coronavirus is all but certain to deal a blow to consumer spending.

Meanwhile, the U.S. bond market has priced in a nearly 20% chance that the Federal Reserve will lower interest rates in March.

Monetary easing in the U.S. and Europe propped up global stock markets during the swine flu and Ebola virus outbreaks. While much remains uncertain about the coronavirus, there is little doubt that easy money is a potent remedy for a bear market.

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