We have decided to post a message on the issue of Coronavirus because at Robertson Baxter, we feel that in this interconnected world, with media transfixed by the issue, the next few weeks may prove testing to all of our peace-of-minds. A rapidly rising number of cases globally will be the focus of attention, with an unsettling new vocabulary (Pandemic) becoming common currency. Financial markets, driven partly by emotion, are likely to continue to be susceptible to bouts of volatility until the spread of the virus is contained and its effects upon economic growth prospects can be properly assessed.
Our judgement is that over the coming quarter the negative impacts on global growth stemming both from inevitable (and possibly extensive) “quarantining” will be temporary and quickly recovered. The lessons learned in China will help as new clusters of infection are identified and the combination of increased awareness, effective testing and the practice of normal infection-control hygiene are expected to be successful in stemming the tide elsewhere
Although what we know thus far gives us little reason for enduring concern, we are certainly not complacent until the risks subside. The impact on the global economy and corporate earnings could be material, even if short-lived. An additional sense of proportion can be gained from putting the current outbreak, having seen around 80,000 infections and 2,800 deaths at the time of writing, in the context of around one billion people each year catching influenza globally, with between 290,000 and 650,000 fatalities depending on the severity of the strain.
From an investment perspective, however, experience suggests that stock markets look past one-off events and there are good reasons to believe that this will be the case again. Specifically, the foundations of the world economy are strong, with consumers, corporations and the financial system all in robust positions to absorb the shock. Furthermore Governments and financial authorities are also fully engaged in offsetting any impact that containment measures might have. In summary, the likelihood of a sharp rebound once the worst is past is also high and therefore our advice is to stay invested and sit tight.