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04 March 2020

A cool head in a time of crisis

James Rowbury, Investment Research Coordinator, Redmayne Bentley

It is almost impossible to open a newspaper, watch the news or use social media without seeing a story, item or post about the coronavirus. At the time of writing, the total number of cases has risen to 92,311, though the headline figures can be misleading. Official recoveries now stand at 48,456, which takes active cases down to 40,720. In total, 83% of active cases are experiencing mild symptoms, giving some relief to those worried about its effects.

Global events such as this are known to affect markets and, therefore, the value of investments. UK markets experienced sharp losses in the last couple of weeks, as investors reacted to reports that global coronavirus cases rose sharply. After a rather sanguine initial reaction from markets, the exponential growth in cases drove widespread panic about the rate of the international spread of the virus and the potential global economic damage.

The impact of virus fears has hit investor sentiment. The FTSE 100 crashed 7.63% last week amidst rising uncertainty in the market. Similarly, the Pound lost 0.38% against the US Dollar and 1.84% against the Euro; global markets followed suit. Investors are increasingly chasing safe-haven assets, driving the price of British, American and German government bonds higher. Similarly, in the flight to safety, the price of gold has risen by more than 10% since the start of the year.

The travel and aviation industry has been the hardest hit as people decide not to travel. However, more widely, it is nearly impossible for a company to avoid either supply or demand-side issues stemming from China, the root cause of the virus, given its place as both a key producer of goods and buyer at the luxury end.
The crisis will clearly have a detrimental effect on short-term earnings numbers across geographies and sectors, but over the long term it is likely that it will be viewed as a short-term issue that was ultimately overcome.

For investors, the focus should remain on building robust and diversified portfolios that weather storms such as these and perform over the longer term. The losses incurred over the past week are only paper losses, and as such, a cool head and a long-term perspective will likely see positive returns in due course.

Please note that investments and income arising from them can fall as well as rise in value. Past performance and forecasts are not a reliable indicator of future results or performance.



 
A cool head in a time of crisis
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