Stock markets across the globe suffered their worst week since the global financial crisis of 2008 as fears over the impact of the coronavirus continue to rattle investors.
Coronavirus was mostly viewed as a temporary issue affecting China. The Chinese moved quickly with efforts to restrict its spread, such as factory closures and disruptions to supply chains.
That deferred business activity gave markets something to look forward to in the second half of the year, as economies were expected to rebound
In the past week news that the virus has spread in a meaningful way outside of China to Italy and South Korea is forcing a reconsideration of that expectation.
It seems that the Coronavirus outbreak has further to run and we should therefore brace for more volatility in stock markets as investors react to bad news.
This week’s volatility is unlike the circumstances that have preceded previous downturns. Market falls of recent years have tended to be driven by worries of a slowdown in consumer demand.
This time, however, companies are being restricted from selling their goods and services that consumers still want to buy. So, while this growth is being “deferred” rather than destroyed, weakness in shares will likely be temporary.
This becomes a bigger issue if the economic break lasts longer than expected, forcing companies to cut back on staff and business operations as then it creates recessionary conditions where demand begins to shrink faster than supply.
For long term investors history has shown it is better to ride out short-term volatility and wait for markets to recover in the medium term.
All this economic disruption will likely mean finding higher returns in cash becomes even more difficult. If interest rates are cut in the US and UK this year, as markets seem to expect, this will feed into continued demand for equities which offer the prospect for higher returns.
If you wish to discuss how any of the above relates to your circumstances, please get in touch and we will be happy to assist.
Barra Gorman FPFS
Chartered Financial Planner
Succeed Wealth Management Ltd