Last week saw significant market declines as the Coronavirus spread out of China to other countries in the EU and Middle East as well as now reaching the US & Latin America.
For the past few months the ‘virus’ had been mainly a ‘Chinese problem’ and as such had not really affected global financial markets.
The steep declines of last week have happened as a result of the uncertainty as to how the ‘virus’ will affect the global economy which has become even more connected since the last outbreak of Sars.
The economy in China has grown significantly since the last major health scare and many international business’s now rely heavily on China to produce or supply goods to them.
History will likely show us that the Coronavirus will have a more significant financial impact than past ‘virus’s’ but China has also shown the world how to reduce the impact of the virus through quarantine and other measures.
While it is likely the news surrounding the current virus will only worsen in the coming weeks it is impossible to predict how markets will react given the already significant falls.
Your ‘Astra Investment Team’ have been spending time talking with the various fund managers we use getting their views on the markets and what they have been doing to protect clients money.
All the managers feel that once the virus settles a recovery is far more likely at this stage than a deeper crisis.
Central banks around the world stand ready to boost liquidity in the market by reducing interest rates and pumping money into the global economy.
Where necessary funds have been reducing exposure to companies like airlines, manufacturing and tourism and putting that money in cash, gold or government bonds.
China is likely to be the market most affected by this crisis and as with the ‘global financial crisis’ once the ‘virus issue’ settles China is likely to take significant action to boost it’s economy and get it back on track.
What should investors do?
Worrying as this outbreak is, we are urging clients not to allow fear to govern their decisions. We have been in similar territory before in terms of health scares, and there are lessons to be learned from previous outbreaks such as SARS, Ebola, MERS and Zika. History has shown it is better to ride out near-term volatility and wait for markets to recover in the medium term.
Provided your attitude to risk and goals for your investments, have not changed remain invested, as selling now will only ‘lock in’ losses. Staying invested also allows good fund managers to make the most of any buying opportunities that present themselves in the coming weeks and months so investors can benefit.
We live in a volatile world and there are many issues facing us like the Coronavirus, climate change and instability and war.
On the positive side technology is changing the way we live and slowly we are seeing a realisation that the world needs to change and we all need to treat our planet with more respect.
The global economy has done well since the ‘global financial crisis’ lifting millions out of poverty and creating jobs and opportunity for many. Once the ‘Coronavirus’ settles with the help of ‘global stimulus’ the economy will likely get back on track quickly.
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