Over the past few days we have seen market volatility ramp up due to concerns over the development and spread of the Coronavirus. As more numbers have been appearing from Asia and now globally concerning confirmed cases, the markets hit a tipping point this week and realised they needed to discount themselves to take in to account the risk to the global economy.
Since 2016, we have come to expect short term periods of volatility. We have had numerous short periods where global markets move aggressively in reaction to political or economic events. Although the end of 2019 provided some clarity on the political landscape in the UK, Coronavirus has reminded us that there are always going to be unknowns and these when they become known can shock markets, both positively and negatively.
It is still too early to call what the impact of Coronavirus will be on the global economy. It is certainly wise to expect there to be a slowdown in manufacturing in China and that this could have repercussions globally as supply chains are hit. Essentially, we do not know how widespread this could be or whether there is a degree of over-reaction.
What we do know is that 2020 was the year where fiscal spending was going to increase in the UK and that reductions in interest rates were on the cards globally to keep global growth ticking along. Coronavirus may well be the event that tips the scales for governments to bring forward or solidify their decisions to stimulate their economies and so try to work against the negative impact Coronavirus could have.
Like all short term periods of volatility, it is important to remember that by being in a well-diversified portfolio, you have already taken steps to mitigate some risk of global markets. Over the past month (To 27th February 2020) the index of leading 100 companies in the UK has fallen 7%. Our Realistic and Cautious portfolios are down 3.26% and 1.91% respectively.
It’s also important to remain focused on the longer term nature of investing and that it is better to have time in the markets than to time them. We remain confident in our model portfolio’s abilities to produce longer term returns irrespective of what the short term concerns may be.