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Coronavirus: What does it mean for investors?

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It’s hard to ignore the impact the coronavirus is having on the world in terms of people’s health, as well as global markets and economic growth. Having infected over 100,000 people globally, and with no sign of an end in sight, coronavirus will continue to lead the news bulletins for the weeks, and possibly months, ahead.

The spread of coronavirus has left businesses counting the costs. Recently the Organisation for Economic Cooperation and Development (OECD), stated the world’s economic growth could grow at its slowest rate since 2009 as a result of the coronavirus outbreak.1

The last week of February saw the biggest tumble in global stocks since the 2008 recession,2 with $9 trillion wiped from the global market value in nine days. The FTSE has fallen 18.3% since the outbreak began and the price of oil tumbled 30% before markets opened on the 9 March 2020.

Coronavirus impact on stock markets

Source: Bloomberg via BBC3

Flybe is one casualty within the UK, having gone into administration after failing to find funds to stay afloat. Already in financial difficulty, the firm struggled with people not willing or encouraged to travel, which left 2,000 people unemployed and thousands without flights. Other luxury goods brands and leisure and holiday firms have also reported coronavirus’ impact, including Burberry, Carnival and Disney. Travel restrictions are affecting businesses with their ability to deliver and receive goods or services. The US central bank responded to economic concerns from the virus by cutting interest rates.

However, it is not all doom and gloom. With stock markets at their lowest level for a decade this can present an opportunity to purchase stocks and shares at a reduced price. Gold has seen a 5.2% increase in value since the outbreak on the 20 January, with several forms of corporate bonds also proving resilient. Some investors will be reflecting on the famous quote from Warren Buffet, to be “fearful when others are greedy and greedy when others are fearful.” This contrarian view of the stock market suggests that when others are fearful of the stock market it may present a good buying opportunity for those looking to invest.

Coronavirus doesn’t necessarily mean long-term investors should be concerned. Investments should generally be viewed for a minimum of 10 years. While there is a dip in market values, that is not to say they won’t rise to new highs in the future, although this is never guaranteed.

Furthermore, such upheaval in the markets highlights the importance of portfolio diversification. “We are experiencing market volatility not seen for a number of years, exacerbated by the latest decline in the oil price and in US Treasury yields,” said Tom Beal, CIO at St. James’s Place. “As painful as this may seem in the short run, it is in markets like this that active managers earn their crust. A number of our managers have told me that indiscriminate selling by passive funds has created opportunities to buy high-quality companies at lower prices. Meanwhile, our own diversified portfolios are holding up relatively well, as diversification is a great insurance.”

We of course don’t know what the outcome of the cornovirus will be, or the longer-term outlook created by its impact. What does offer reassurance is that we have been through these types of scenarios in the past. In all those cases, it has been better to be focused on the long term rather than trying to overreact to shorter term considerations. Crucially, as part of our investment management approach, we put our trust in our fund managers to make stock selection decisions according to where they see value and opportunity whilst ensuring a portfolio is as diversified as required.

Should you wish to discuss in further detail please do not hesitate to contact us.

Call 01823 273130 or complete an enquiry form and we will get back to you as soon as possible.

The value of an investment will be directly linked to the performance of the funds you select, and the value can therefore go down as well as up. You may get back less than you invested.

1 https://www.bbc.co.uk/news/business-51700935
2 https://www.reuters.com/article/us-global-markets-idUSKCN20M001?taid=5e58eefe09d31b0001388d35
3 https://www.bbc.co.uk/news/business-51706225

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