Market Movements – February 2020

by | Feb 24, 2020 | Commentary & Insights, Market Movements | 0 comments

It is just over a month and a half since the Coronavirus (2019-nCoV) was identified and announced by Chinese officials. The virus has now claimed the lives of c. 2,600 people: the majority of these in China.

Firstly, we must recognise that on a human level, regardless of the outcome, these events have a very real and long-lasting impact on the people involved. We feel it is important to acknowledge this as it is easy for it to get lost in the numbers and statistics reported by the media.

Market impact:

Following the first announcement of the outbreak, the impact on financial markets had been relatively muted. Initially, only Asian and Emerging equity markets sold off due to their strong economic links and proximity to China. However, with reports of the virus spreading across the globe, investors have now begun attaching more risk to the virus’s potential global impact, and this is being reflected in asset prices.

Despite 97% of all cases being from China alone, reports of new cases in Italy, Iran and South Korea have elevated fears of the Coronavirus outbreak becoming a global pandemic. These concerns have only been worsened by media reports of travel restrictions and strict quarantine being imposed across towns and cities by government officials.

Impact on growth:

It is impossible to predict how the outbreak might develop and even harder to anticipate what the long-term financial impacts will be. In the short-term, it is likely that Coronavirus will have a negative impact on global growth. Delayed consumer spending, disrupted supply chains, and restrictions on the free movement of goods and services are all likely to produce lower growth. Therefore, the magnitude of the long-lasting impacts will ultimately be decided by how the outbreak develops and whether it is contained.

History as a guide:

Though not perfect, our best guide to the implications of this event is to look at historic epidemics and their impact on financial markets. Looking at previous modern-day epidemics, we can get a sense of how markets reacted both in the short term and the longer-term impact.

The last three modern day epidemics were Ebola, SARS and Swine Flu. All three cases coincided with small to medium declines (-5% to -10% range) in equity markets, which then quickly recovered.

Interestingly, in the last few days we have seen most equity markets pull back with some markets opening 2-3% down this morning (24 February 2020). On the other side of the coin, safe-haven assets such as gold and US government bonds have rallied strongly.

Looking ahead:

Despite this recent pull back, due to last year’s strong returns, markets are still very much up over twelve months. Though we cannot predict the trajectory and impact of Coronavirus, we would warn against getting caught up in any panic selling that may develop in markets.

As you know, we are long-term investors and therefore take a long-term view. By owning a well-diversified portfolio, made up of different asset classes, it allows us to remain invested during these more volatile periods and therefore benefit from long-term growth.

 

 

General Disclosures: This article is based on current public information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. The information, opinions, estimates and forecasts contained herein are as of the date hereof and are subject to change without prior notification. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. The price and value of investments referred to in this research and the income from them may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur.

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