John Townsend‘s Investment Opinions 25 February 2020
Coronavirus or Covid-19: don’t Panic!
A seemingly new virus has emerged in the Chinese city of Wuhan in Hubei province and has then spread to parts of the rest of China and, via the travelling public, to elsewhere in South East Asia and in a small part, on to the rest of the world. The World Health Organisation has expressed concern over the spread of the virus to Iran, Italy and most recently France, Germany and Tenerife.
The social networks abound with rumours and ‘Fake News’ panic reports and have therefore by extension caused the ‘16 year old’ traders in the financial markets to immediately press every alarm button they can find and have instigated panic sales of equities. The WHO suggests that not only is the world facing an epidemic but also an alarming ‘infodemic’.
The reality is that some suppliers of components in China have temporarily shut down to prevent the virus from affecting their staff, and therefore some global manufactures, especially those which have ‘just in time’ policies and carry no or few component stocks have been affected by missing parts. These manufacturers can be in the automotive sector or electronics. Indeed any area where parts or goods can be made more cheaply in China than elsewhere is affected. The Chinese government has also shut down factories that produce medicines and similar products such as analgesics, which were made cheaply there. The shortage of these products will be felt around much of the rest of the world. Airlines and tourist resorts have also suffered as people as a whole try not to venture to areas which might be affected.
The fall in equity market prices especially in the Hong Kong market, which is one tenth of the size of the Shanghai / Shenzhen markets is a temporary phenomenon and as with similar crises such as SARS in the past, will soon be over. For those investors who like to take less conservative risks, this is probably a good time to invest anew in Asian – including Chinese – equities.
For those with a more sober approach to life, a longer term view of their investments and a memory of past crises, what we are seeing now is another typical overreaction in the equity trading markets, which will be multiplied by the effects that falling indices will have on the ETF investments. Good active managers will have diversified their portfolios so as not to be vulnerable to shocks in any small groups of sectors. Some, especially those specialized in the Hong Kong equity markets will see greater movement, but even this will be short-lived.
The main message is to hold one’s nerve and not to sell into a temporary fall. My clients with balanced portfolios will still have a growth in their portfolios of around 2% since the beginning of 2020, even after the panic fall in the markets. This is less than before the crisis emerged but the year is still less than 2 months old and there will be plenty of time to make additional gains when the panic eases.
John Townsend advises clients on their investment portfolios for Matz-Townsend Finanzplanung.
He is a Fellow of the Chartered Institute for Securities and Investment in London.
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