We aren't out of the woods yet even though global markets appear to be finding their feet from the COVID-19 scare.
Central banks are doing their part to revive growth and governments around the world (including ours) are probably days away from unleashing fiscal stimulus to tide businesses over the next few months.
If governments can come up with a credible and large enough program, the sell off on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index could be over sooner than what sceptics are warning.
Reading off the SARS playbook
In that optimistic scenario, there are some stocks that are better placed to rally than others. The analysts at Macquarie Group Ltd (ASX: MQG) have put on their thinking caps and have come up with two sectors that they think will lead the recovery.
They based their findings on the SARS outbreak. Even though COVID-19 is worse than SARS, Macquarie thinks it will go by a similar playbook.
"Based on China's experience, we suspect the growth in US cases peaks within weeks," said the broker.
"This is not long, but the market's horizon shortens in a correction. ASX stock returns should rebound with the US, unless Covid-19 cases rise more rapidly here."
Climbing the wall of worry
There are a few other key worries that investors shouldn't read too much into. Falling bond yields is one even though the 10-year yields on US and Australian government bonds have tumbled to record lows.
During the SARS, the Australian 10-year yield bottomed 95 days after stocks hit a trough, explained Macquarie.
Investors shouldn't also be too concerned about the World Health Organisation's (WHO) declaration of pandemic gloom. The broker pointed out that stocks bottomed within days of the WHO declaring SARS a crisis. Using the WHO as a cue would have left investors worse off.
"By the time the WHO said the SARS crisis was over, ASX stocks were up 12% and global stocks 20%," added Macquarie.
Sectors to lead the rebound
The two sectors that led the SARS rebound were technology and resources.
"Software stocks rose 80% in the year after the SARS low," said the broker.
"Given the secular growth story of 'software eating the economy' plus the benefit of a lower discount rate increasing the value of future earnings, we think investors will be drawn back to Tech."
As for resources, these stocks outperformed industrials by 17 percentage points in the year after the SARS low. China stocks are already up 10% in the past month, which indicates that the worst of COVID-19 may be over.
Stocks for your corona watchlist
"As China has passed the worst, and its economy is coming back online, we think China is in a better position to stimulate," said the broker.
"This should support resource stocks, which are still roughly half the valuation of Industrials."
What's interesting is that Macquarie found that it was price-earnings (P/E) re-rating and not earnings growth that drove the rebound.
From that perspective, the tech stocks that I think could do well in this recovery includes Nearmap Ltd (ASX: NEA) and Audinate Group Ltd (ASX: AD8).
Resources stocks that are "buys" in my book include Fortescue Metals Group Limited (ASX: FMG) and Rio Tinto Limited (ASX: RIO).
