Breakingviews - Viral CLSA note delivers welcome rosy outlook

Health officers in protective clothing cull poultry at a wholesale market, as trade in live poultry suspended after a spot check at a local street market revealed the presence of H7N9 bird flu virus, in Hong Kong June 7, 2016. REUTERS/Bobby Yip

HONG KONG (Reuters Breakingviews) - A virus-related email has spread almost as fast as the illness from China. Shortly after Hong Kong broker CLSA hosted an interview for customers with a SARS expert, an anonymous listener’s notes from the call were zinged around the city and beyond. The popularity owes in part to the professor’s comparison of the novel coronavirus to a bad cold. It’s a rare upbeat assessment that defied consensus.

Analysis out of an investment bank rarely extends beyond small investment circles. In this case, however, insights last week from John Nicholls, a professor in pathology at the University of Hong Kong, were shared far and wide, even reaching parental group chats on WhatsApp.

The free marketing for CLSA probably won’t deliver much of a return. In fact, it wasn’t even the bank’s own analysis and was hardly proprietary. Nicholls delivered similar messages on CNN and elsewhere. And although CLSA built a reputation for its unconventional approach, it is unclear whether that ethos can be sustained as its Chinese state-backed owner, CITIC Securities, tightens its grip.

In any case, Nicholls downplayed the severity of the epidemic as fear and panic were spreading. Hong Kong closed schools for over a month and speculation of shortages has prompted shoppers to hoard toilet paper and other goods. One likely explanation for the rapid circulation of the unofficial CLSA transcript was a yearning to hear something positive about the outbreak.

In this case, the rosier outlook went against the grain. That isn’t often the case in finance. Stock and market forecasters on Wall Street and elsewhere are almost always optimistic, with the percentage of “sell” ratings usually very low. Analysts tell clients what they want to hear; a negative view might cost a big, long-only fund manager money.

There is no scientific conclusion yet on the latest coronavirus, but China’s senior medical adviser told Reuters on Tuesday it could peak this month and be over by April, echoing the earlier perspective from Nicholls. Travel bans, voluntary quarantines and frenzied buying suggest that governments, companies and consumers have yet to act otherwise. Investors have, though.

The S&P 500 Index is trading at an all-time high and China’s benchmark CSI 300 has rebounded 7% since dipping to a five-month low on Feb. 3. That helps make the case for expert contrarian analysis.


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