Coronavirus and your Investments

on 28 February 2020

should you worry about the effect of coronavirus on your investments

Should you be worried about your investments?

The outbreak of the Coronavirus in China is one of the leading stories of the year to date. The virus has had the effect of stopping flights and confining cruise passengers to quarantine along with speculation over the effect on world trade.

True, epidemics like this can be unnerving for investors and potentially affect economies and businesses. As financial planners we want to know what it means for our investment portfolios and clients

It’s feasible that the Wuhan Coronavirus may become the next major pandemic.  Global health organizations will work out how to contain it, eventually creating a vaccine. Whilst most global epidemics have been confined to the history books, there have already been outbreaks of new ones in the 21st century. The most significant being SARS, MERS, Swine flu, Ebola and Zika.  All very alarming at the time. Fear of the unknown is deeply embedded within the human psyche, with our initial reaction panic and flight. This may have served us well for millions of years, but it is counterproductive to long-term investing.

We expect to see the number of confirmed cases grow and dominate headline news for this quarter. Yet there are some positive noises from the Chinese Government, strict containment measures are having some positive effect. Even if that is the case, the Chinese economy will still experience a slowdown as a result of decreased activity, with a knock-on effect to global markets. After-all no one had the Coronavirus in their 2020 planning projections. It’s an example of an arising risk that can’t be predicted or modeled. Making knee-jerk reactions with long-term investments is a counterproductive measure, and it is not something we do here at Ovation.

There are some key points worth considering;

  • Investors tend to react nervously to epidemics, but the long-term picture is positive. Research studies have considered, the subsequent global investment returns after the outbreak of similar epidemics in recent years (SARS, Swine Flu, Ebola, Zika etc) concluding that investment markets typically recover quickly after an epidemic is reported.
  • Exposure to Chinese stocks is relatively low across the Ovation portfolios but in any event, we still expect these holdings to deliver positive outcomes over the long-term.
  • Investment markets are efficient and will quickly adapt to seek out new opportunities

Will we change our investment strategy?

At Ovation we appreciate that, although distressing and harmful to the unfortunate people who have contracted the virus, little has changed from an investment strategy perspective and we remain committed to our long-term investment philosophy

Bob Mills – Investment Manager

The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.

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