Coronavirus Infecting your Money?
The spread of Coronavirus has caught the attention of investors; stock prices have wobbled; industrial commodity prices have dropped, and bond prices have surged. Companies are now beginning to warn that the coronavirus outbreak in China will impact their earnings. Just this week Apple announced they will miss their revenue forecasts this quarter because of the contagion.
With China sitting at the epicenter of this virus, the ripple effects are expected to be larger than in previous outbreaks like SARS. The world is more connected, and China’s economic importance is far greater than it was 15-20 years ago. Economists are lowing their global growth estimates to less than 1% for the first quarter of 2020.
Currently many factories in China remain closed; this is sending shock waves though supply chains. Nissan for example, has been forced to temporarily close a factory in Japan due to a shortage of Chinese components.
In addition, the impact of the coronavirus has been significant enough that OPEC has cut its forecast for global growth in oil demand this year. However, China consumes far more oil today than it did in 2003 during SARS; so, it should not be a surprise there is going to be a bigger impact on oil demand in 2020.
Until recently investors have been focusing their attention on the impact the epidemic is having on industries like tourism and transportation. Both very legitimate concerns, especially since most airlines such as United and American have announced they won’t resume regular flights to China until at least April 24th. But now, since this contagion is starting to impact both the production and demand for a variety of products; investors are starting to worry about the trickle affect into other industries.
With history as our guide, the financial markets will likely find a more stable footing once the number of new cases peak and ultimately decline. The economy and industries closest to the outbreak, like emerging market stocks, gaming, hotel and airline stocks will likely snap back as the contagion stabilizes. The bounce back is expected to look like the release of a coiled spring because of pent-up demand and the positive sentiment around Phase 1 of the U.S.–China trade deal. Analysis are confident this bounce back will happen; they just don’t know when.
As it stands (at the time of this writing) the daily case reports show that new cases of the virus have not yet crested. However, there are now reports that more effective treatments and perhaps even a vaccine are on the way. This news is helping to restore calm into the markets.
What should investors do?
Hopefully, not too much. If you work with a Financial Planner or are a client of mine, action was taken a long time ago. Investors with a well diversified portfolio, balanced with their long-term goals and risk tolerance in mind, should take a wait and watch approach. Admittedly, there may be some pain before the situation improves; some assets in your portfolio will preform well while others will struggle. But always remember, volatility in the markets create buying opportunities.
Have a great weekend,
Tracey
Sources: Invesco Canada Blog by Kristina Hooper posted 02-18-20, Article the Investment Junction by Myles Zyblock, Dynamic Funds posted February 2020.