You probably recall the "All is well!" tweet that President Donald Trump sent out after Iran fired a missile at a US military base in Iraq on Jan 8. He was relieved that no one had died in the retaliatory strike that followed the US drone attack that killed Gen Qassem Suleimani on Jan 3.
After an initial market panic, events quickly de-escalated. As a result, the US decided not to strike back after its base was hit. The reduced risk led to a decline in gold and oil prices, while US bond yields and global stock prices rose.
All might not be well with the world, but looking at the big picture, the global economic and investment outlook is still in a cyclical upswing phase. This can be seen from the global purchasing managers' indices for both the manufacturing and service sectors.
Exports from China and Northeast Asia, as well as Thailand, are rebounding. On the global monetary front, liquidity is ample, spurred by asset purchases by leading central banks.
On the risk-event front, conditions have clearly improved. Tensions between the US and Iran have eased, despite the killing of the key military leader, which initially led to fear of escalation to a full-blown war.
In any case, Iranian leaders are now preoccupied with anger at home and abroad after the accidental shooting down of a Ukrainian passenger jet, killing all 176 people aboard. The incident has also dramatically reduced the political capital of the Revolutionary Guards and their patrons.
Meanwhile, a move by France, Britain and Germany to trigger a dispute settlement procedure after Tehran abandoned nuclear enrichment limits could push Iran back to the negotiating table, a sensible long-term solution to the current conflict.
Another important positive event is the "phase one" trade deal between the US and China, which is seen as a major de-escalation of a trade war that had haunted the global economy and investors for 18 months.
But as old risks fade, a new risk has emerged. The outbreak of a new strain of coronavirus in Wuhan, China, and its spread to other countries, has raised concerns. While the situation is fluid at present, we offer some comparison between the new outbreak and the Sars epidemic of 2002-03.
First, it seems the Wuhan flu might be spreading more quickly than Sars. There have been about 1,000 reported cases in just one month, while Sars took four months to reach that number. But the fatality rate so far is just 3% of total cases, versus 10% for Sars.
Second, Chinese authorities have learned many lessons from their bungled handling of Sars, and have moved decisively to prevent a large-scale outbreak. All transport to and from Wuhan and neighbouring cities has been shut down, just 14 days after the first case was reported. When Sars broke out, it was four months before Hong Kong authorities ordered a shutdown of all schools.
Lastly, in the Wuhan case, there has not yet been a report of a "super spreader", or a patient that might have infected many others. As a result, we believe -- and hope -- that the new strain will not affect the economy and investment as severely as Sars did.
As for Thailand, the economic news is still not bright. Even though the 2020 budget bill has passed both houses of parliament, its validity is in doubt. The Constitutional Court has been asked to rule after reports that two MPs were recorded as voting for the bill despite not being present in the House at the time.
The delay of the bill may lead to further delays in budget disbursement and a subsequent contraction of the economy.
But the global economic picture is brighter despite new risks. Liquidity injections that have been essential to global investment performance remain high. Even in Thailand, we may see signs of a revival because world trade is recovering, which may give a lift to exports. The possibility of a sovereign credit rating upgrade could spur the SET index as well.
With the above factors in play, we therefore advise investors to accumulate risky assets such as stocks in developed markets, while adopting a wait-and-see strategy in emerging markets, especially China.
We recommend underweight holdings in assets that generate consistent income, such as investment-grade bonds and REITs, while being overweight in safe-haven assets such as gold.
Despite some pushback, the traffic light in front of us is still green. Please step on the gas pedal before the yellow light starts flashing.
Piyasak Manason is senior vice-president and head of the wealth research department at SCB Securities. Email piyasak.manason@scb.co.th