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The biggest story of the decade so far is undoubtedly the outbreak of the Coronavirus which started in a small province in China and has now reached almost every corner of the globe.

The outbreak confirms how closely connected the world is these days and how interdependent countries and governments have become to manage things from not only a national but a global perspective.

As financial advisors our role is to safeguard the financial futures of our clients who themselves are spread across the world and, naturally, in times like these we need to manage client expectations.

It is quite revealing to see the range of responses. It is human nature to see a bell curve of sentiment that ranges on one end from those who see threat to those who see opportunity at the other end with the majority in the middle ground willing to sit tight.

While some clients have been in touch with concerns there have also been those who have seen an opportunity.

Certainly there are plenty of professional investors who could do well from this period but those also tend to be the kind of people who see a tsunami coming and run out with their surfboard – just as there were those who profited from the financial crash in 2008 (as you will know if you’ve seen or read The Big Short). On the flipside there will also be those who rush to act and end up worse off.

There is certainly an opportunity for those out of the market to get in as prices are low but for those currently invested the advice is to sit tight.

To put this whole episode into context, there are constant threats and opportunities to markets that vary in scale and frequency. Investing is about accepting the inevitability of these and setting things up to weather any storm over the long term.

Consider that an event such as this outbreak has an approximate likelihood of occurring once a decade. Other events that impact markets such as natural disasters, terrorist attacks, national elections, company takeovers etc can also be hard to forecast and occur with greater frequency. Although they also vary in impact the same principles must be applied.

That’s essentially the bigger picture that stops us from wading in and making rash decisions.

With specific regard to the Coronavirus outbreak the Chinese authorities appear to be managing the progress of coronavirus as the measures they have put in place appear to have had the desired effect.

Global economic growth is still expected to be between 2-2.5% this year, with a rebound expected towards the end of the year. For investors who are getting twitchy and thinking of selling their investments now, there is a clear risk of selling at the bottom of a rut and then buying back into the market at a higher price. Remember that gains and losses only become so when assets are sold.

The immediate impact on individual companies themselves is uncertain with many well-known international companies issuing profit warnings.

Due to the proliferation of headlines in the news and across social media channels, it is more common that investors will react to these rather than actual company updates.

While stock markets may continue to fall, the world’s policymakers are prepared to soften the impact of the virus. The Chinese central bank, the People’s Bank of China, has already taken steps to protect the economy. We must wait and see whether the US Federal Reserve follows suit in March and makes cuts. Western governments may also boost spending to help protect the global economy as China has done already.

Benefiting from moving into cash or selling shares is dependent firstly on markets continuing to fall and then timing things right to reinvest before prices recover. It is not so much about timing the market, but time in the market, with long-term investors benefiting from steadily compounding returns over the years, as any chart of historic market performance will show. The companies in your portfolio are all there because they are strong enough to weather such storms and have robust business models that are built for long term prosperity.

We must learn from history as this epidemic is not the first of its kind and won’t be the last. Reactions are usually fast-paced and short-lived with markets always recovering well as this data illustrates:

Source: https://tinyurl.com/vbdvm7r



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