As markets continue their downward trajectory, we explain what this means for investors:
Coronavirus market sell-off expected to linger for coming months
- The impact of the Coronavirus is hard to predict and cannot be compared to past events. Monetary and fiscal stimulus may have limited initial impact
- Consumer behaviour is likely to further influence market events and will significantly affect the travel and leisure industries
- Recommendation: investors should hold their current positions, adopting a “watch and wait” stance to weather the storm
We take the view that “this selloff is different” and the incessant downward spiral of the market is more reminiscent of the financial crisis than any other bouts of turbulence we’ve had in the remarkable uptrend over the last ten years. Comparisons to other spreads of disease are difficult, SARS, MERS and Ebola were largely contained in far flung places, Covid-19 has impacted a much bigger Chinese economy than SARS in 2003, Covid-19 seems to spread far more easily and it is here in the West. The big fear is to what extent the authorities react, will they shutdown transport hubs, businesses and schools. At the moment it seems the West will not react as drastically as the Chinese have but it will play on consumer’s minds with many opting to stay away from places of gathering, high streets, restaurants and bars as well as putting off travel plans. No surprise that the market slide has been led by the travel companies with EasyJet down by nearly 30% over a week.
With the markets already down by 11% over a week, those who haven’t already sold have obviously made losses and need to reconsider whether selling now is to risk missing out from a future recovery. A recovery will come but it may not necessarily be V shaped but more likely a U shape since the virus in the West is still spreading and we do not know the full economic fallout. However, the longer it takes to get over this crisis the more likely we are to see certain economies who are already weak, go into recession, I’m thinking Germany and Italy as most likely. Monetary and fiscal stimulus will help with financial and economic confidence but it may do little for people who are afraid to catch a virus and avoid going out and spending money.
We take the view that from here, the best course of action may be for investors to sit tight and do nothing.
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