The last few weeks have been a turbulent time for investment markets, and it will come as no surprise that the catalyst for this volatility is the Coronavirus outbreak. Whilst a globalised economy brings with it many advantages and efficiencies it has also made the world a smaller place and vulnerable to such viruses.
History shows that epidemics/pandemics (e.g. Spanish flu, SARS, Bird flu) do cause significant market volatility in the short-term but markets tend to recover quickly afterwards. At present, we are still seeing an increased number of cases and fatalities reported across the globe with the first cases recently reported in the USA.
The impact of the shutdown in China is also causing concern as this is likely to have a knock-on effect on the global economy if it continues any longer than anticipated and takes longer to return to full capacity. Technology, basic resources, travel, autos, leisure and entertainment sectors have been significantly affected with the industries that service and feed off them also being hurt. You can easily see how the economic effects of the virus has spread quickly.
As it stands, there are still some aspects to be concerned about such as:
- The increase in new cases in Europe, the Middle East and South Korea
- The first US and sub-Saharan Africa cases
However, we can afford to be cautiously optimistic about other factors as well such as:
- The huge decline in new cases within China
- Almost all new Chinese cases are limited to the Hubei province
- The decline in the proportion of cases reported as “severe” is back to early February levels
- The death rate is ticking up, but given this is a lagging indicator, it is doing so at a rate that does not give cause for concern
- A high proportion of deaths, while still tragic, are among men with pre-existing conditions
- The increasing recovery rate – two-thirds of cases outside of Hubei have recovered
- Targeted fiscal and monetary stimulus, although only a small amount to date
Finally, it is worth noting that stock markets are forward looking and tend to recover ahead of improving economic news. The impact of the outbreak is likely to represent a relatively short-term knock to the global economy and therefore stock markets worldwide.
It is very important at such times, to remember that the portfolios in which you are invested are being managed in such a way as to protect your investments using high quality stocks and shares and that whilst these periods are difficult, all the evidence confirms that the best advice is to sit it out – and we have seen time after time that investors who do so tend to achieve better results.
Therefore, we strongly advise our clients to ride out the latest bout of volatility in anticipation of a recovery.