On New Year’s Eve 2019 China alerted the World Health Organisation (WHO) of several unusual pneumonia cases in Wuhan, a port city of 11 million people. The following day the city’s Huanan Seafood market was shut down.
Since this time over 80,000 people in 50 countries have been infected and nearly 3,000 have died. The WHO are close to categorising this as a pandemic and governments worldwide are acting aggressively to contain its spread.
What is perhaps unusual through this is that, despite these aggressive acts of quarantine over the last couple of months, it is only in the last week that markets have reacted. It was almost as if markets were factoring in the expected post-virus stimulus spending without factoring in the massive falls in global economic activity first. That said, the sharp sell over the week mean markets seem to be making up for lost time.
Where to from here?
Often there is a temptation to either sell everything or look for bargains when there is a broad and quick selloff. But, at the moment there is little data to go on with respect to the Coronavirus’s (COVID-19) financial impact.
The human impact is significant and has the potential to climb much higher with more countries declaring new infections (yesterday was the second day where more cases have been reported outside than inside China), and the media are feeding the fear with headlines such as ‘Everyone will get Coronavirus’ as contributed by The Australian. What they failed to mention is that the virologist that they were quoting went on to say that for most it will feel like a severe cold.
Global equity markets finally responded over the last week and have sold off around 10%. For markets it is the unknown economic impacts that they fear. News abounds about the supply chain constraints stemming from China and this certainly will have a large flow on impact to businesses and economies globally.
In looking to recent history for illumination as to how this may play out, the 2009 Swine Flu pandemic lasted from early 2009 until mid-2010 and infected between 700 million and 1.4 billion people or approximately 11%-21% of the global population. The deaths stemming from the outbreak were estimated between 150,000 and 575,000; a mortality rate of 0.01% to 0.08%. Through this world GDP contracted by 1.7% before rebounding by 4.3% over the course of 2010. The rebound was due to the significant economic stimulus principally driven by the Chinese government. China, amongst other others has already signalled its intention to once again pump fiscal stimulus into the system. Given the large shut down in China and quarantine of its people we expect this fiscal stimulus will have to be significant.
The World Health Organisation (WHO) notes that the rate of new infections in China seems to be slowing and most likely peaked between 23 January and 2 February. Signs are also emerging that China is gradually getting back to normal with traffic congestion and pollution levels moving back to pre COVID-19 levels (interesting that we write this as a positive in today’s world).
At times like these it is paramount that we act with logic and not just emotion. When working with you, we deliberately spend a lot of time understanding what your long-term goals and aspirations are and we formulate investment strategies around those. From time to time markets will react violently to short-term noise but we must assess if this will impact those longer-term investment strategies.
At this point we believe are in one of those noisy market interruptions and that with time this will calm down. While there remains risk in the scale of the Coronavirus outbreak, maintaining a diversified portfolio will help navigate through these times. We will continue to talk with our clients about appropriate changes to portfolios.
Keep Wealth Partners Pty Ltd (AFSL 494858). This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different and you should seek advice from a financial planner who can consider if the strategies and products are right for you.