As cases of novel coronavirus continue to increase worldwide, Yves Bonzon, Group Chief Investment Officer at Julius Baer, shares his view on the impact the pandemic is having on global markets. Here are his 12 conclusions.

The news of Covid-19 spreading to South Korea, Italy and even to the more remote Iran has triggered a violent reset of investors’ perceptions of the potential consequences of this crisis. Markets are now pricing in the possibility of disruptions to economic activity and supply chains to be much more severe. Here are Yves Bonzon's 12 key insights:

1. The coronavirus hit is a typical external shock: in this particular case, the impact on the economy can be compared to a heart attack – it is a sudden shock leading to an abrupt contraction of economic activity.

2. Perception might get worse before it gets better: markets are increasingly pricing in the potential for a more severe scenario with the epidemic spreading across the globe.

3. Remote tail risk: an uncontrollable spread of the pandemic accompanied by drastic sanitary containment measures could cause a deeper dent in growth with recovery only in the second half of the year.

4. Watch out for a decline in velocity of money: small and medium enterprises (SMEs) confronted with liquidity stress could trigger a further decline in the velocity of money, intensifying global deflationary pressures.

5. Investors are flying blind: the current lack of visibility on fundamentals is translating into increased risk premiums, implying higher future returns.

6. No quick and easy fix: fiscal stimulus will have limited traction in the short-term.

7. The tail is wagging the dog: monetary stimulus can help stabilize asset prices in the short-term, preventing a negative wealth effect in the system.

8. More stimulus is on the doorstep: as global policymakers are forced to be more accommodative and for longer, one should expect a stronger global economy in 9-12 months’ time.

9. Distorted data: in the meantime, macro and microdata will be distorted and will ultimately be dismissed as such.

10. Acceleration towards non-orthodox macro policies: Hong Kong took the first step with direct cash donations to its residents. The use of negative taxes as a policy instrument has started.

11. Remain fundamentally constructive on risk assets: current market movements reflect changes in valuations, not changes in values.

12. The bull market is not over: liquidity remains supportive and fundamentals remain strong.