Declared a global emergency by the World Health Organization (WHO), there’s no denying that the new Coronavirus is spreading around the world and causing serious concern as cases multiply. The virus has also affected financial markets and many investors are naturally worrying about their investments. We’ve asked five questions to our Head of Investment Strategy, David Semmens, to help you understand the impact of the Coronavirus on your investments.
How does Coronavirus compare to the SARS outbreak that started in 2002?
David Semmens: At present the Coronavirus and SARS outbreaks appear similar. Both outbreaks started in China and are believed to have originated from animal markets. But there are some key differences worth noting. This novel Coronavirus is more infectious than SARS. It has taken less than two months for the new virus to infect more than the total number1 infected by SARS which lasted between November 2002 and July 20032. Another key difference is the incubation period. For the Coronavirus, it takes up to 14 days for symptoms to appear and during this incubation time, the virus can spread - this was not the case for SARS. As a result, it’s more difficult to estimate the potential number of Coronavirus cases, so we don’t entirely understand the scale of the outbreak yet.
What’s been the impact on financial markets since the Coronavirus was discovered?
David Semmens: There’s no denying it, market concerns have risen as the virus has introduced significant uncertainty to the outlook. However, looking back at the impact of SARS on financial markets, we don’t currently expect to see any sustained market decline, as such outbreaks don’t tend to have long-term economic impact. Trade and consumer spending will be delayed rather than eliminated, meaning confidence should comeback into the financial markets.
What sectors have been affected by the Coronavirus?
David Semmens: Unsurprisingly, airlines, and especially Asian airlines, have been impacted by the Coronavirus. But that’s not all. US casino firms are dependent on revenues from Macao - the only place in China where casinos are legal. Similarly, luxury brands are also heavily dependent on Chinese purchasers, calculated to account for 33% of spending by Bain & co3. A concern for global growth is the impact on supply chains. Apple, for example, manufacture many parts of their iPhones in countries affected by the Coronavirus. As a precaution they have closed their stores, factories, and corporate offices in China until February 9th, meaning the American tech giant will need to delay production. However, they are unlikely to have to make changes to products at this time and look for different suppliers. If the closure were to be extended significantly this could cause some concern in the investment world, but since production is unlikely to completely stop, such worries shouldn’t last over the long-term.
What should investors do?
David Semmens: Many investors are worrying, and that’s understandable. The Coronavirus is not to be taken lightly especially since we don’t know its full implications, but as an investor, it’s important to stay calm and think about the long-term. For historic comparison, it’s worth noting that in the twelve months that followed SARS (2003) and the Swine Flu (2009), Emerging Market and Global Market shares experienced a sentiment-led dip, but quickly returned to rise above their pre-outbreak levels. Of course, nobody can predict what will happen with the Coronavirus, but we also will have little insight to the economic impact until the next round of global economic data is released in March. However, one thing to keep in mind is that your investments may go down in value, but when you are investing for the long-term, it’s crucial to try and resist the urge to sell. Seeing the value of your investments drop can be unsettling, but until you sell, your potential losses remain hypothetical. Your losses only become real if you sell, so when you’re investing for the long- term, it’s important to be patient and keep your nerve. Whatever happens, remaining invested could help you ride out the bumps.
How prepared is Wealthify?
David Semmens: We’re taking the situation very seriously and keeping a close eye on the potential economic and market outcomes of the Coronavirus. At present, the emotional, rather than rational, response to the virus is leading the economic impact, and if required, we will make adjustments to your Plan to shelter your investments. If you have any further questions about your Plan, don’t hesitate to contact us, we’ll be happy to answer all your queries.
Past performance is not a reliable indicator of future results.
Please remember the value of your investments can go down as well as up, and you could get back less than invested.
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