Obviously there are concerns around the impact that the coronavirus is having on investment markets but one thing to differentiate this from other investment market declines is that this has the basis as a health crisis and not a financial crisis.
So what is occurring with market falls is the age old chestnut of uncertainty. Uncertainty and concern as to what impact this virus will have on businesses across the world and of course in their own backyard in Australia. There are obvious local industries that are impacted by this event such as education and travel, and also those businesses engaged in manufacturing who source or sell to China or other nearby Asian countries, such as health and miners.
But of course manufacturing industries throughout the world are being impacted by this virus because of the supply uncertainty and in many of our superannuation funds and investments, we may hold some of those companies. Microsoft, Apple and Samsung being the most well-known.
The purpose of our note to you today is to assure you that like on other occasions it’s not a time for panic selling.
Many of you are in a diversified portfolio that has exposure to share markets yes, but also has exposure to cash and fixed interest/bond markets. These latter assets represent the defensive component of the portfolio.
It should also be pointed out that particularly in the US, the stock market was at a fairly elevated level and this drop over the last week has just retreated its value to where it was in August 2019. We have noted in our review meetings with clients in 2020 that their overseas share returns have been in the order of 20%+ as the US market had been strong. In fact too strong, in many analysts’ views and, to some degree, the coronavirus situation may be a bit of excuse for some selling to get back to normal levels.
At this stage the guidance we are getting from our professional partners is that there will be an effect on many businesses if this situation becomes prolonged and there are shutdowns of industry.
However it is unknown. And that is why we have this volatility in the markets – because of the unknown.
There is no denying that the Chinese footprint on Australian and global prosperity has been significant. For example 15% of all inbound tourism to Australia came from China. The coronavirus outbreak in many ways is more serious than the SARS or the Ebola health scares in previous times, and the market reaction is just mirroring that uncertainty. And while Chinese outbreaks appear to have reduced, that positive has been more than offset unfortunately by outbreaks in other parts of the world now.
So regardless of how the virus spread evolves, it appears that economic growth through 2020 is likely to be volatile and under expectations. What action governments and central banks take is yet to unfold.
But as we have said, 2019 was a strong year for returns, very strong, so this should be factored into any analysis. And as is always stated, the types of investment we guide you on are long term.
As always if you have concerns about your own personal investment situation, please don’t hesitate to contact us