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  • Writer's picturePaul

The Impact of the Coronavirus on Investments

Over the past week it has been impossible to not hear about the issues the Coronavirus is causing and the growing panic as large amounts of money are being wiped off the share market.

Looking back at previous occurrences of viral outbreaks, such as SARS in 2003, H1N1 (swine flu) in 2009 and Middle East Respiratory Syndrome (MERS) in 2013, the market suffered short-term drops within the range of 5% to 15%. These corrections were then followed by strong rebounds as the fear dissipated. At present the majority of research houses agree that global growth will be down in the first quarter of the year as a direct result of the coronavirus with the key variable being how long the threat of the virus persists.

While history can provide us with a guide , we currently have the view that the effect of this epidemic is likely to be greater due to the following factors:

-China’s dominant presence in the global economy

- Quicker spread of the virus to other countries.

- The extended closure of Chinese industry, which at present is restricting people movement, disrupting supply chains and affecting key commodity prices, which in addition will result in a flow-on effect creating lower confidence levels which will severely hamper growth in China and the countries such as Australia which are heavily reliant on China.

Due to this we are likely to see a high number of companies downgrade their earnings for this financial year. This coupled with high market valuations at present, will likely drive prices lower in the short term. Although we can not predict a timeline on the threat at hand, we believe for the long-term investor, the majority of companies’ downward price shifts in relation to lower earnings should be viewed as short term head winds and not long-term fundamental issues at this point in time.

From an asset allocation perspective, Aston Financial believe that our clients have adequately diversified portfolios in line with their risk tolerance to cope with the increasing market volatility at present. Although in saying this we understand that at times of high uncertainly fear is a powerful emotion, especially for those who are retired and relying on their investments, so we encourage anyone who currently feels uneasy to contact us for a review of their position.

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