I am sure by this stage that you are well aware of the spread of the coronavirus and the resulting impact on global stock markets. While the human aspect of this is of greater concern, we feel it is appropriate to contact you with our own thoughts from an investment perspective.
Over the last 2 weeks, the markets suffered some of the biggest daily declines in stock market history, in reaction to the ongoing negative sentiment regarding the virus. This has effectively reversed the gains that were earned since October 2019.
History tells us that these events, while often unforeseen, are nonetheless inevitable. From an investment point of view, the advice is always not to panic. Markets invariably recover from such “shocks”, albeit nobody really knows how long that recovery will take. For example, markets bounced back yesterday, only to take another tumble this morning with travel stocks suffering significant losses. Every day seems to bring a different message at the moment. While no-one can predict the future we feel that this is more likely to be a v-shaped recovery. This means markets could potentially get worse before they get better.
What we are certain of is that there will be increased volatility in the markets over the coming weeks and months, but the consensus appears to be that we are looking towards recovery in the second half of 2020. For now, we do not know how long this volatility will continue for, how many more cases will be confirmed, or when a solution will be found. All markets will be affected globally. Tourism will suffer and we can already see the effect this is having on airlines alone. Central Banks and the US Fed are looking at cutting interest rates to ease concerns. In the longer term, a solution to this crisis is a work in progress and a number of countries are desperately trying to develop a medical solution quickly. Supply in China, which accounts for a quarter of global manufacturing, has diminished. However demand will always continue to grow and China will return to its original supply position. It will be a matter of how fast this will happen and this may lead to ‘sharp shock’ growth.
Our constant reminders for a well-diversified portfolio have proven to be a repetitive, but absolutely necessary message. Hopefully now you understand why we try to reinforce this message. We are not recommending a mass move to a fully defensive position right now as we cannot time re-entry into the markets and therefore lose out on the potential bounce back. The worst thing that anyone can do in any walk of life is panic. This never provides a good result. However, every individual and every portfolio is different. Therefore, if you have any concerns surrounding your own individual portfolio and would like to reassess your current holdings, please do not hesitate to contact us to arrange a review.