COVID-19
The conclusion from our recent 2020 Investment Commentary now appears very apposite! An unknown unknown that no-one had considered - unknown animals, carrying unknown benign viruses would meet and the result would close down cities! But we are not Epidemiologists, and we leave the science to the experts! Looking at financial markets however, the economic impact is key. Authorities in China and across the world seek to contain the spread of the virus, closing down transport networks, and this causes disruption to normal economic behaviour (shopping, leisure, travel and work become more difficult).
The question is time. In terms of Global GDP, China represents around 15% of total world output, and has significant Just In Time networks across the globe, so there is the potential for economic shocks, the longer this continues. The recent losses in equity markets across the world, are investors now pricing in how long (and how much damage) this slowdown could achieve. Central Banks and policy makers are already stepping in, providing interest rate cuts as well as tax cuts for businesses. The longer this continues, we would expect more central bank and government policy intervention, resulting in a “bounce” at some point in the future, at least, history shows us this:
|
Epidemic |
Month end |
6-month % change of S&P |
12-month % change of S&P |
|
HIV/AIDS |
June 1981 |
-0.3 |
-16.5 |
|
Pneumonic plague |
September 1994 |
8.2 |
26.3 |
|
SARS |
April 2003 |
14.59 |
20.76 |
|
Avian flu |
June 2006 |
11.66 |
18.36 |
|
Dengue Fever |
September 2006 |
6.36 |
14.29 |
|
Swine flu |
April 2009 |
18.72 |
35.96 |
|
Cholera |
November 2010 |
13.95 |
5.63 |
|
MERS |
May 2013 |
10.74 |
17.96 |
|
Ebola |
March 2014 |
5.34 |
10.44 |
|
Measles/Rubeola |
December 2014 |
0.20 |
-0.73 |
|
Zika |
January 2016 |
12.03 |
17.45 |
|
Measles/Rubeola |
June 2019 |
9.82% |
N/A |
Source: Dow Jones Market Data
Past performance is not a reliable indicator of future returns.
We invest for the long term, and would not typically look to move to a wholesale defensive strategy due to (what will eventually be) “noise”. However, when markets look to be trading around historical highs, we do implement drip feeding, and in reverse, when markets look low we reverse this and would suggest to clients that they move all of their money into markets in one go. But we remain steadfast with our conclusion that:
“Make sure your risk mandate is correct, invest for the long-term and in line with your objectives. Firstly, we are risk managers. If risk is controlled properly, financial collapses should not have too adverse an impact upon your day to day living.”
The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.