4 weeks ago on 29 January 2020 we published a video on the potential impact of coronavirus, initial market reaction and potential impact across the globe.
We looked back to the Severe Acute Respiratory Syndrome (SARS) virus of 2002/2003 to try and gain an understanding of what may happen to markets with coronavirus. Back then, markets reacted by falling over 20% in the Far East and similarly in the West between 10%-15%.
Markets bounced up and down and then quickly recovered through the summer of 2003.
The timing of this outbreak is eerily similar. No vaccine is expected for coronavirus until the summer and whilst we can guarantee no carbon copy of markets and falls, it would be wise to expect falls as we have seen so far and plan accordingly.
We suggested in our video last month China now has a global position economically and if the virus spreads it may impact on those US, UK and European listed global firms that rely on production in China, so it may drag global markets back if not contained.
We have started to see this already with UK, EU and US investors taking flight for safe havens such as gold (gold hit a record yesterday) as the virus impacts in Northern Italy, Algeria and a hotel in lock down on Tenerife.
De-risk or stay invested?
We cannot possibly call the market. You may wish to de-risk and move out of markets for now or indeed choose to sit tight for the medium and longer term, remain invested and wait for any recovery during significant falls. Personally, we invested in China/Emerging markets immediately after China opened and bought in low and made over 10% in just 4 weeks. We are now watching western/developed markets closely to time our entry back into markets, as we are currently cash parked for now for those sectors whilst they fall.
Whatever happens, markets move in cycles and they will recover. The experience of falls in 2002/03 as well as 2008/09 and then recovery have already taught us this.
If you are already invested you may chose to remain invested and ‘ride it out’ or switch to a safe haven.
If you are cash parked or have considerable funds held in cash for ‘opportunity’ investing you may choose to invest soon or hold and wait. Nobody can call the market or indeed the risk of virus contagion so either way we are all gambling.
We have made our decision, you must make your own.