The recent outbreak of a new virus in China, COVID-19 or CoronaVirus, has led to unprecedented levels of concerns for peoples’ health which has in turn caused economic uncertainty as output and demand have been depressed by the impact of the virus and its potential effects.
For investors in shares this has translated to a short- term increase in volatility as markets adjust to each piece of news, whether in the official broadcast media or the ever increasing social media (mis) information.
The virus first came to the western world’s knowledge on 31st December although the potential extent of the problem was slow to be realised. This can be seen by the reaction of equity markets, which had a small reaction in January but started to fall more significantly around 16th February as infection rates, particularly outside China, rose more rapidly.
We have continued to monitor the situation in stock markets and with fund managers in what has been a very fast-moving situation in recent weeks, however, for longer term investors the message is very clear, stay calm and stay invested.
It should also be borne in mind that not all asset classes have reacted to this development in the same way. Fixed interest investors and those in commodities have seen an overall rise in market sentiment, as future interest rate cuts now look more likely, (The Federal Reserve implemented a 0.5% cut last week). Central Banks and Governments have signalled their intentions to support economies with monetary policy and fiscal stimulus. This could take the form of tax cuts, (VAT for example) or more public spending on infrastructure in future.
While equity markets may display short term volatility, once infection rates start to plateau, and vaccines are produced, then markets should respond positively. Currently it is impossible to know when that will be or what the medium to long term effects may be on the economy both here and globally. What we do know from previous disruptive events, is that when market sentiment returns to positive territory, investors need to be in the market.
While certainly not wanting to underplay the awful human impact to many of the virus, from an economic and investor point of view, we believe the Coronavirus is likely to have a temporary impact on share prices, which reinforces the reason to remain invested.
We will of course issue any further updates if there are significant changes that will impact on the underlying investments and if you have any further questions please contact your adviser who will be happy to discuss how you should respond to these events, taking account of your personal circumstances.