Coronavirus Market Update: How the virus is affecting your investments

2 March 2020 

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Markets fall as virus spreads

Financial equity markets such as the FTSE 100 Index are on track for their worst week since the 2008 financial crisis as fears over the impact of Coronavirus continue to grip investors. However, the portfolios we advise on, are known as ‘Managed Funds’ and have limited exposure to these indices. This is because they are constructed to facilitate diversification across many different asset classes and globally, to manage risk.

Fears for people, economies and businesses 

It is reported that around 80% of people who contract the virus will likely experience mild symptoms, similar to those of cold and flu, with some patients showing no symptoms at all. Approximately 5% of those who contract the virus will be seriously affected and around 3% are not expected to survive.

While this naturally makes for some stark reading, the current death rate is relatively low, especially when compared to other widespread illnesses and previous epidemics and pandemics. So, if the imminent risk to life is at this level, why are markets reacting so negatively to the situation?

Simply put, it is due to the unknown longer-term impact that the virus will have on businesses and therefore wider economies. Many companies have their supply chains concentrated in China. The vast concentration of cases in this region has caused widespread factory shutdowns, a severe drop in productivity and a collapse in near term economic output.

This is having negative knock-on effects on businesses across the world. The threat of a pandemic to global supply chains, and therefore the global economy, means investors now fear the worst. The concern is that if the situation cannot be contained, then it could tip the global economy into a recession.

Short-term impact on investments

We are keen to remind all our clients that investment portfolios are designed to deliver positive, risk-adjusted returns that outpace inflation over any rolling five-year period. The current situation may feel uncomfortable but the managed portfolios that we advise on are currently reacting and behaving within the expected volatility and risk boundaries set in place.

The short-term performance will of course be negatively affected by events. But, once again, please remember longer-term investment objectives and the importance of long-term thinking when it comes to investing.

What happens now
The fund managers of portfolios have not changed their longer term (five-year+) view on the macro global environment, nor have they changed strategic asset allocation. This means they are confident investment portfolios are structured correctly to achieve long term investment objectives.
They are also conscious not to let the virus outbreak distract from the underlying global trends in place at the beginning of the year. These include a revival in manufacturing; reflation (expansion in economic output due to government stimulus); reducing trade war risks and reducing near-term Brexit risks.
There are also potential tailwinds that could be provided from fiscal and monetary policies worldwide. Liquidity support from governments could actually be increased further to counteract the extra short-term uncertainty that Coronavirus has generated. This points to a potentially more forceful economic revival within the second half of the year, with the obvious caveat of an end to the virus being confirmed.

Our advice to you

Volatility, and sharp market down turns are nothing new and will happen again. We have seen them before and have benefited when markets bounced back.

We expect market volatility to persist until the spread of the virus starts to subside and we have some clarity on the longer-term consequences for global supply chains and consumer activity. We would recommend leaving funds invested, when markets are in a downturn as withdrawing funds crystallises losses.

Use cash savings nowwhile investment values are low. We regularly recommend clients use cash savings to fund financial needs and replenish this from investments when fund values bounce back. This can help protect and increase wealth over time. 

While the outbreak is poised to deliver material short term disruption to the global economy, we currently expect the shock to be relatively short lived. Should the virus be contained quickly we would expect risk assets to rebound. However, if the spread continues for a number of months, the impact on global growth could be significant.

We continue to speak to the fund managers and investment specialists at some of the top investment houses in the UK to gain their insight and understanding of the situation and will continue to engage with you through regular updates and of course welcome calls from you to discuss further.

We want all of our clients to have a positive long term experience of investing and we will continue to provide updated, useful information. Please do not hesitate to contact us to discuss further.