Home > Blog > Update on the Markets – the Effects of Coronavirus
Update on the Markets – the Effects of Coronavirus
The reaction to the Coronavirus has caused abnormally high levels of volatility within global stock markets. Self-isolation means that fewer people are in the workplace leading to lower production levels, breakdown of components being delivered and supply-chain disruption for manufacturing companies.
Self-isolation and the fear of contagion has had a massive impact on the travel industry, in particular airlines and hotels. The drop in supply and demand will have an immediate effect on corporate profitability and thus share prices.
In response, Central Banks stated that they will provide help and the US Federal Reserve cut its interest rate by 0.5% on 3rd March and the Bank of England has cut interest ratesto 0.25%.
A long-term perspective is important at these times, as investors are becoming increasingly concerned about the economic damage caused by the spread of Covid-19. While there are many ways this virus can impact the assets in which you invest, it is important to separate permanent damage which will impact the long-term fair value of an asset from temporary damage which will quickly be forgotten.
It is important to highlight that the Next Generation Morningstar strategies were well structured leading into this, with a diversified investment mix that was on the defensive side and biased to undervalued assets. Morningstar believe the strategies will remain equally well-structured coming out of this, because their approach is sensible and built in line with your risk tolerance.
It is our strong belief that you make money by “time in the markets” rather than timing the markets. Looking at the performance of the strategies back tested over the financial crisis of 2007/8 we can see that all the strategies fell and rebounded in exactly the way we would expect. Whilst every cycle is different, we would expect a similar result.
Morningstar have also researched
the impact of the most recent epidemics on stock market performance below
For the most cautious investors, the cautious strategy has fallen by only 0.2% year to date (as at 11th March) and the adventurous strategy has fallen 12.4% compared with European markets falling over 20%.
If the impact is short-term, price declines may produce buying opportunities. Warren Buffett, chairman and CEO of Berkshire Hathaway, said recently that “you don’t buy or sell (a) business based on today’s headlines. If (the market) gives you a chance to buy something you like and you can buy it even cheaper, then it’s your good luck.” Some asset classes appear attractive through this lens; however others continue to remain unattractive despite the recent falls.
If you have any concerns or
questions, please contact your adviser.
Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc.
This cookie is installed by Google Analytics. The cookie is used to calculate visitor, session, campaign data and keep track of site usage for the site's analytics report. The cookies store information anonymously and assign a randomly generated number to identify unique visitors.
This cookie is used by Google Analytics to understand user interaction with the website.
This cookie is installed by Google Analytics. The cookie is used to store information of how visitors use a website and helps in creating an analytics report of how the website is doing. The data collected including the number visitors, the source where they have come from, and the pages visted in an anonymous form.
This is set by Hotjar to identify a new user’s first session. It stores a true/false value, indicating whether this was the first time Hotjar saw this user. It is used by Recording filters to identify new user sessions.
Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. These cookies track visitors across websites and collect information to provide customized ads.
1 year 24 days
Used by Google DoubleClick and stores information about how the user uses the website and any other advertisement before visiting the website. This is used to present users with ads that are relevant to them according to the user profile.
This cookie is set by doubleclick.net. The purpose of the cookie is to determine if the user's browser supports cookies.
This cookies is set by AppNexus. The cookies stores information that helps in distinguishing between devices and browsers. This information us used to select advertisements served by the platform and assess the performance of the advertisement and attribute payment for those advertisements.
Other uncategorized cookies are those that are being analyzed and have not been classified into a category as yet.
This cookie is set by Hotjar. This cookie is set when the customer first lands on a page with the Hotjar script. It is used to persist the random user ID, unique to that site on the browser. This ensures that behavior in subsequent visits to the same site will be attributed to the same user ID.