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Coronavirus market impact grows

24 February 2020

Investor complacency about the potential impact of the coronavirus outbreak on investments could leave them open to a nasty surprise.

That is the view of deVere Group chief executive Nigel Green, who warns there will be an imminent Coronavirus-triggered market correction of up to 10%, as new cases of Coronavirus continue to be confirmed globally.

There has been a surge in the number of people affected in Italy, Iran and South Korea, while the first cases of Coronavirus have now been confirmed in Kuwait, Bahrain and Afghanistan.

Green says: “Many investors remain complacent about the far-reaching impact of coronavirus, which is continuing to spread – and a faster pace. This will inevitably hit financial markets and investors’ complacency leaves many wide open to nasty surprises.

“Major global companies, especially those with heavy exposure to the Chinese economy, are lowering profit guidances due to the outbreak. This will have a knock-on effect across international supply chains and throughout economies.  But is the message being heard by investors?

“In addition, coronavirus has struck at a time when major economies, including Japan, Germany, India and Hong Kong are facing a downturn due to other factors such as the U.S.-China trade dispute and political protestors, which could hit the world economy.”

Green believes that until governments pump liquidity into the markets and coronavirus hits its peak, a near term correction is looking increasingly likely.

He adds: “Against this backdrop and with the ongoing uncertainty over the direction of stocks and other risk assets, multi-asset portfolios might be favoured by global investors, given that they offer diversification of risk as well as of return. Investors need to ensure that their portfolios are coronavirus-proofed as cases jump and a market correction looks more likely.”

According to Adam Vettese, analyst, eToro, the uncertainty surrounding the extent of the virus poses the biggest problem for investors.

He says: “The most worrying thing about the outbreak is that we have no idea how long it will last. That causes huge problems for firms that operate cross borders, such as airlines, or who rely heavily on global supply chains, such as manufacturers and healthcare companies.

“Unless governments can get a grip on the outbreak – and fast – it could be the most disruptive thing to hit markets in many years. That will almost certainly see investors nursing big losses.”

The beginning of the week has seen leading indices across the globe take a tumble, with the South Korean KOSPI the most notable victim, losing 3.9% on Monday following a sharp rise in the number of infections reported. Europe has followed suit, with Italy diving 4% when the markets opened on Monday, following a number of new cases in the country.

While the uncertainty may prompt some investors to sell, Adrian Lowcock, head of personal investing, Willis Owen, says investors should not panic and make rash decisions. Instead, he suggests diversifying, with assets such as gold and government bonds offering a safe haven thanks to their defensive characteristics, and recommends investors adopt a long term view and buy on the dips.

Lowcock explains: “The uncertainty that the outbreak creates is causing many investors to sell first as they don’t want to take the risk that things could get significantly worse. In such situations it can be hard to know what to do with your investments. It is easy to focus on the short term and react accordingly. However the best course of action is to stay calm and focus on your own goals and aims. Markets have a tendency to over react in the short term and price in events that haven’t yet happened.”

Mihir Kapadia, CEO, Sun Global Investments, agrees that safe haven investments will fare well.

He comments: “The overwhelming fear amongst markets is that the virus is still spreading, and with no concrete solutions in place to contain it, looks set to get worse as the week progresses. As a result, we could expect safe havens to continue their rise with gold, which has reached seven-year highs, likely to remain higher for the rest of the month. The Dollar and US Treasury Bonds are also higher. Stocks will remain under pressure until the outbreak peaks.”

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