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Your Investments in the Coronavirus Economy

Your Investments in the Coronavirus Economy

The recent outbreak and subsequent spread of Coronavirus (COVID-19) has thrown a spanner into the works when it comes to the global stock market. Concern from investors around the stability of global markets, the severe impact of COVID-19 on the Chinese economy, and what it all means for the value of their portfolio has led to a sharp drop in the markets over the past week or so. This is a similar trend to what we saw in the wake of the SARS, Swine Flu and Ebola outbreaks in the past 20 years – where markets took a tumble before soon recovering and returning to normal operations. In this article, we’ll take a look at the potential effect Coronavirus may have on the global economy and share prices, and what may come as a result of the outbreak.

Pandemics and the Stock Market – A Trip Down Memory Lane

Riding the economic storm of a global health crisis is nothing new. In the cases or SARS, Swine Flu and Ebola, markets declined but recovered soon after. The prospects of a global pandemic often lead to rash decisions being made based on the fear that outcomes will be worse than they end up being. As a result, investors who are swept up in the panic and sensationalism brought on by the media can potentially miss out on the market’s recovery, and end up worse off than they would have been had they maintained the same portfolio. While predicting the exact outcome of COVID-19 and its long-term effect on the global stock market is near-on impossible (perhaps other than the longer it takes to control the outbreak, the more the economic damage will be caused), the present situation does give us an opportunity to look back at previous global health crises and how they affected the global economy. The following table offers a broad overview of three recent pandemics, and also a look at the Spanish Flu of the early 20th century.

Global health crises, and their effects on the stock market.

 SPANISH FLU
(1918-1920)
SARS
(2003)
SWINE FLU
(2009-2010)
EBOLA
(2014)
Approx. cases of infection [1]500 million800010-200 million3313
Approx. market effect [2]-10%-10%-5%-7%
Approx. market recovery time [2]4 months<1 month<1 month<1 month

[1] Data from World Health Organisation; [2] Data from Traders Magazine

As you might surmise from the data above, even the Spanish flu, which wiped out 50 million of the 500 million it infected (killing 3% of the world’s population) only caused a 10% fall in market value, over a four-month period. Again – nobody can predict with 100% assuredness what will happen to the global economy in the face of Coronavirus, but based on the longer-term market outcomes of the four outbreaks mentioned above, there seems to be some precedence for strong recovery once the dust settles.

Behavioural Economics – The Illusion of Control

In such times of uncertainty, investors may feel compelled to chop and change their portfolios, or sell large quantities of stock. Swept up in the media hype, it can often bring a comforting feeling of control to sell – i.e. you are doing something about it! Rather than panic-selling, savvy investors understand the importance of making rational decisions and riding out short-term events where it’s appropriate to do so. As we’ve discussed above, short-term market stumbles often recover quickly – while thinking you or anyone can predict and time markets is an illusion. At best, you can get lucky.

However, everyone is different: at a different stage of life, different goals and objectives and different attitudes to risk and return.  Seeking professional assistance from a financial planner, if you haven’t already, is your best bet for getting structured, well-informed advice so you can make the best decision for your circumstances.

If you’d like to know more, or would some assistance about how the McKinley Plowman Wealth team can help you, call us on 08 9301 2200 or visit www.mckinleyplowman.com.au.

 

 

References/Data:

https://www.tradersmagazine.com/news/just-how-badly-can-the-coronavirus-mess-up-the-stock-market/

https://www.who.int/emergencies/diseases/novel-coronavirus-2019

https://www.who.int/csr/sars/country/en/

Aaron McCracken

written by:

Aaron has over twenty years of experience in the financial services industry working with large companies and small businesses across all aspects of financial planning. He has broad experience across superannuation (including self-managed superannuation), investments, estate planning and personal insurance, retirement planning and business succession planning.
Aaron is passionate about the value of professional, client-focused advice and enjoys working closely with clients to help them make smart decisions with their money, as well as aiding them to clarify and achieve their financial aspirations. Aaron McCracken of MP Wealth (WA) is an Authorised Representative of Count Financial Limited.

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