Coronavirus and the impact on the global markets
Posted on: 7th February 2020 in
Investments
The coronavirus has dominated the global headlines in 2020.
The World Health Organisation has already declared the coronavirus an international health emergency. Despite the devastation it has already caused, the virus still doesn’t have a name.
The term coronavirus refers to a group of viruses to which it belongs to. Scientists have given it a placeholder name, 2019-nCoV. That name doesn’t exactly roll off the tongue, so for the purpose of this article, we will refer to it as the coronavirus.
Its effects have been felt beyond the hospital wards. Businesses, trade, and even large economies have felt the impact. While China and the rest of the world struggle to find a cure and stop the virus from spreading, investors are bracing themselves for the fallout.
To understand how this could affect you, let’s look at the ripple effect that global events can have.
Impact on the market
Global events naturally have an influence on the markets.
The SARS outbreak in 2003 took around 0.5 – 1% off China’s economic growth. Experts have warned that the coronavirus could be more damaging, due to the timing.
Since 2003, China has established itself as the world’s second-largest economy. When a large economy takes a hit, it has an impact on the global economy.
Companies outside of China have also felt the effect financially. Apple has been forced to put a temporary freeze on its retail operations in China. Their supply chain, which is dependent on China, has also been affected by the outbreak.
This might all sound negative, but there are some positives here for investors.
What this means for you, the investor
What happens on the global markets can have more of an impact on you than you might think. Just because you don’t trade on the stock market, it doesn’t mean you don’t have investments.
Private pensions that you are paying into will usually be invested by fund managers in big companies on various stock exchanges around the world.
Some companies have been hit harder than others by the coronavirus.
With flight cancellations and planes being grounded, airlines have suffered financially. The price of industrial commodities has also dropped.
China is one of the main buyers of crude oil which has dropped in price by around 15% since the outbreak.
The impact of the coronavirus on some markets is clear, but for others, it’s a different story.
Bitcoin and gold are two assets which have seen a surge in the wake of the coronavirus.
Gold is usually seen as a safe investment which could explain its recent interest from investors. As for bitcoin, it often peaks during times of financial uncertainty, and its current price reflects that.
The price of one bitcoin is currently around $9,300. The cryptocurrency is up by nearly 10% and has risen by 30% since the end of 2019.
Bitcoin value has gone up since the coronavirus outbreak
How diversifying your portfolio helps
During difficult financial times, portfolio management is crucial.
Every investor knows that bad times are just part of the investment process. If you invest in the markets, getting your portfolio management strategies in place sooner rather than later is advised.
The latest events highlight the importance of investing in the right areas for proper portfolio management.
Diversifying your investment portfolio means just that. It’s about not putting all of your eggs in one basket and spreading your investments.
This usually works best when you invest in two areas which are completely opposite of one another. We take the markets we discussed above as an example.
Let’s say person A has invested all of their funds in crude oil. Person B has put some of their money into crude oil and some into bitcoin.
In the current climate, person A would be losing money on their investment. Person B would also be losing money on crude oil, but their bitcoin investment will have soared.
By hedging your bets and diversifying your portfolio, you create a balanced portfolio. For those concerned about their pension investments, there are options.
Bear in mind that some pension providers offer more flexibility than others for investment options. Just like an investment portfolio, it’s a good idea to make sure your private pension is evenly spread and performing at its best.
Markets historically bounce back
China’s market saw a drop of 8% on the first day of trading after the Chinese New Year holidays. Remember that ripple effect we spoke about earlier? Well, the fall in the Chinese market is part of the reason why the global stock markets are lower.
Despite the drop, markets are already starting to recover. On February 5th, The Wall Street Journal reported stocks were already starting to recover.
Oxford Economics predicts that despite the 4% first-quarter drop, the Chinese economy will bounce back. The global forecasting company says they expect an average growth of 5.6% for the full year. Their previous forecast before the virus was 6%.
It’s not the first time a major world event has hurt the financial markets.
The SARS virus saw markets decline as it continued to spread. Once it was contained, they bounced back. Whether it’s war, political uncertainty, or a global health crisis, the financial markets are resilient.
As an investor, it’s about applying the right strategies to your portfolio in the knowledge that things should improve.
If you are concerned about your investments, or you want more information on investment strategies, speak with an expert. You can contact us using the form below.
