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OPINION: How should investors react to the coronavirus market falls?

 

28th February 2020

 

The situation at the moment with the coronavirus is very concerning, not just for the investment world but also for the health of ourselves and our loved ones. Like many, we are watching the situation with concern. Even medical experts cannot foresee exactly how this is going to map out so our comments in this area cannot be taken as a guarantee of how things will develop.

 

Clients investing in financial markets, should only do so for the longer term. We have been concerned that Stock Markets have been overvalued recently and we have been expecting a correction for quite some time. It turns out that the coronavirus has been the “straw to break the camel’s back” and this has triggered a huge reaction in the markets. This will possibly turn out to be an overreaction by the time all is finished. Selling investments in the middle of a market panic rarely makes sense as it takes a loss on paper and makes it reality. Better, if you can, to review matters once the panic has subsided somewhat.

 

Most investment portfolios are not 100% invested in the stock market. They will also include other investment types, such as fixed interest securities, property and cash which behave differently, meaning the scale of stock market losses may not fully translate to equivalent losses in your portfolio.

 

Looking at the specifics of the coronavirus, it is probably going to have a big impact on business this year. Certain businesses may struggle. However, on the other side, there will be some businesses which will benefit. Business providing medical services, disinfectants and sanitisers and those which have the ability to provide their services remotely or provide delivery services are likely to benefit if the coronavirus becomes an epidemic here in the UK. Something else which may happen is that there could be an adjustment in the way in which manufactured goods are sourced. Currently, so much material comes from China and other places in the world but this might start to change. It could cause there to be a rebalancing back towards a more locally sourced materials and manufactured goods in order to minimise the risk of international exposure. There are so many unknowns - not all of them to the negative, depending on the business sector.

 

That said, there is going to be a short-term pain factor. If we look though into the distance a couple of years and specifically focus on the coronavirus, what might happen?

  • Let’s assume the virus becomes pandemic. If we were to look two years ahead from now, for example, one possibility is that a vaccine will have been developed which will start to make inroads into its effect.
  • Less optimistically, the coronavirus might already have been out in the community at large and the effects to the economy (and individuals) will largely have run their course. As markets are always trying to look ahead, the coronavirus is likely to have a big impact on them in the short-term but eventually, they will likely become accustomed to its impact. Alternatively, the impact will be reduced by the virus either running its course or successful development of treatments and vaccines for it.

If we look at previous pandemics as an example, the Spanish Flu remains the worst in the last 100 years or so. It was hugely devastating - much more devastating than is likely to be the case with the coronavirus. Even then, it ran for a period of a couple of years (1918-20), albeit at a time before antibiotics and the modern understanding of the transmission of disease but lower population mobility.

 

These points do not minimise the seriousness of what is clearly a very concerning situation with the capacity to cause a lot of human misery. However, in investment terms, long-term investors will recognise a relatively short term effect on investment values but also opportunities for fund managers to snap up any “bargains” which become available due to market overreaction as well as to select companies which are well placed to benefit from the recovery phase of the situation when that eventually comes.

 

Investors need to:

  1. Invest for the long-term
  2. Ensure you keep sufficient cash reserves for short-term needs
  3. Invest in a portfolio appropriate to your circumstances and attitude to investment risk and with a diversity of asset type.
  4. Not be unduly influenced by short-term market movements.

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Points to note:

  • This is article represents an opinion only - it cannot cover evr possible eventuality and is not specific to your cicumstances. You should not make financial decisions based on this article without consulting a qualified Financial Adviser.
  • The value of investments can fall and you may get back less than you invested.
  • Past performance is not a guide to future performance.
  • No investment is suitable in all cases and if you have any doubts as to an investment’s suitability then you should seek qualified advice.
  • The information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness.
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© Medics Financial Services Limited. "Medics Wealth Management" is a trading style of Medics Financial Services Limited who are Authorised and Regulated by the Financial Conduct Authority. We are entered on the Financial Services Register No 131216 at  https://register.fca.org.uk/. Registered in England & Wales. Registration Number: 1723058. Registered Address: 14 Albert Road, Tamworth, Staffordshire, B79 7JN.

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