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Coronavirus and the impact on the global markets

Over the last couple of months we have seen the global markets become shaken with volatility witnessed on a dramatic scale. The markets have seemingly been reacting not to the health concerns of coronavirus but the impact it will have on the global economy. Not just in the short-term but long-term too.

As coronavirus broke out beyond China, the rest of the world has followed the model of quarantining. The reduction in social mobility, and its subsequent impact on the wider economy has created fears. Fears of a reduction in global demand and a disclosed supply chain have accelerated the speed of the global stock markets down turn. The environment was made to look even less appealing as an ill-timed OPEC disagreement saw oil prices roughly halve.

What about asset classes?

We have seen virtually every asset class has suffered a downturn in valuation with the market sell off being indiscriminate regardless of the longer term health prospects of businesses. However not all investment asset classes have suffered a reduction in values as much as equities.

Will there be a recession?

As the weeks have passed, it is now evident that the impact of coronavirus, is likely to be around for the medium term and is sparking more uncertainty in the global economy and fears of a recession. Whilst there are still many unknown factors, the swift and relatively cohesive response from Governments and central banks, such as generous fiscal packages and interest rate cuts, will offer some confidence to the wider economy and the markets.

Having witnessed bear markets in 2000 and 2008 it is vital that we hold onto the lessons learned. We believe that this unprecedented volatility will pass, and the bear market too will end. The current situation is worrying over the short term, but we remain committed to investing for our clients longer-term plans.

What should I do?

Now more than ever, we would remind all investors that selling at this extremely volatile time would simply realise losses and prevent participation when the recovery inevitably does come. Investment strategies and recommendations are built in line with carefully analysed and researched risk profiles and time horizons for investing.

For most investors a well-diversified portfolio will help in these times of extreme volatility. Active fund managers will be analysing markets for opportunities to try and take advantage of well-priced investments that can help propel portfolio values forwards as we move out of the current crisis.

As previously noted, most asset classes have been experiencing stark movements in valuation, but a portfolio of different types of assets (e.g. equities, Government and corporate bonds, property etc), offers a degree of diversification. This will have offered some downside protection from a direct investment into say a single company share, or a direct investment into the FTSE 100.

At this time the only certainty is uncertainty, and there may be more volatility ahead. History would suggest that remaining calm and focusing on the longer term objective will deliver the best outcomes for the vast majority.

 

If you would like to discuss anything in more detail or have any concerns about your portfolio of investments, please do not hesitate to contact us.

Disclaimer

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.

Past performance is not a reliable indicator of future results.

Coronavirus
Posted by Matthew Bromley
23rd April, 2020
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