With the spread of the coronavirus, and the news about it becoming more prevalent, we have engaged with the investment managers that form a part of our independently ratified panel to determine the potential impact that this could have on investment positions. We hope that the following provides a brief insight into the common themes, the rationale behind investment decisions taken during such times and an understanding of the longer term impact.
Coronavirus and SARS
The similarities between the Wuhan coronavirus and the SARS outbreak in 2003 are easy to make, and the following highlights how quickly the impact on investments can change both during such an, and afterwards:
“The outbreak is drawing comparison with the SARS epidemic of 2003. SARS (severe acute respiratory syndrome), which caused 800 deaths, had a real, but short-lived, impact on the economy. China’s GDP growth rate slowed from 11% in the first quarter of 2003 to 9% in the second – mainly through the hit to tourism and transport. When SARS was eventually contained, the pace of GDP growth quickly recovered, resulting in growth for the year of 10%.
The economic impact this time round depends on how quickly the outbreak can be contained. We expect that there will be a significant hit to retail activity, especially with the outbreak occurring during the key consumption period of Chinese New Year. We also anticipate significant disruption to industrial and trade activity.” (Source: Cazenove Capital)
The response from China
The comparison to SARS in 2003 is more than just the impact on markets. The improved response from the Chinese Government has also been widely commented upon and seen as a positive move in comparison to 2003:
“China has learnt many lessons from previous super-bugs and this time round was startling in the measures it took to contain the outbreak. About 56 million people were quarantined by locking down 10 cities across the country. Meanwhile, advances in medical science meant the virus’s genetic structure could be rapidly analysed and shared with laboratories around the world. That should help identification and the creation of a vaccine.” (Source: Rathbones)
What is the feeling towards the impact this could have on investments?
All investment managers we spoke to have highlighted some of the potential volatility that could be caused in the short term, while at the same time focusing on the longer term view, which is key to our clients and their longer term goals:
“Fear and uncertainty could well lead to further weakness in equity markets, especially after their very strong performance in 2019. Sectors such as transportation and traditional retail are most vulnerable, while healthcare and e-commerce could outperform.
The SARS experience suggests that once the situation is contained, however, activity will bounce back sharply. If the negative effect on the domestic economy intensifies, we expect the government to strengthen policy measures to support targeted sectors, leading to a rebound in activity later in the 2020.” (Source: Cazenove Capital)
“It is too early to tell the scale of any problems the current virus will cause…..There is always the risk that markets over-react to the news as it unfolds, however, so it is worth remembering that global share prices bounced back sharply after the SARS virus had been contained.” (Source: Quilter Cheviot)
“We expect the outbreak to pressure the airlines, consumer discretionary, and tourism industries. And if the severity of the outbreak increases, retail sales and tourism could be affected more significantly: the Chinese yuan would likely weaken due to the impact on growth, and the Japanese yen would benefit from safe-haven flows. But, based on initial reports on the virus, we think the economic fallout is likely to be less than during SARS in 2003. SARS lasted as a health risk for eight months, but led to a sharp fall in Chinese growth over only one quarter, followed by a swift recovery.
We remain alert for an increase in the severity of the outbreak, although at this time do not believe it warrants portfolio action. We are inclined to view the drop in markets as an opportunity to add exposure to emerging market and Chinese stocks.” (Source: UBS)
The news relating to the Wuhan Coronavirus has been fast moving over the last week or so, and this is an area where we are receiving constant updates from the constituents of our preferred investment panel. Based on all information seen thus far there appears to be a consensus that this is likely to cause heightened short term volatility. However, for anyone whose objectives are aligned with investing for the longer term, this position is likely to remain unchanged at this time.
However, to discuss the position specific to your plans and objectives, or If you would like further information regarding any of these, please do get in touch with your usual Partners Wealth Management adviser.
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