The impact of the Coronavirus on the stock markets

Stock markets across the world have fallen sharply because of fears over the economic impact of the coronavirus as the number of cases continues to rise. The Dow Jones was hit by a daily points drop of 4.4% on 27th February and the main European markets also fell, with London’s FTSE 100 index down more than 3%.

Sectors most affected

Not surprisingly, shares in airlines and travel companies have dropped significantly, with EasyJet and IAG (owner of Tui and British Airways) both dipping in the FTSE 100. Oil prices have also fallen, with the price of Brent crude being at its lowest since 2016.

Firms that rely on goods from China, like the car manufacturer, Jaguar Land Rover, have highlighted that they could soon run out of parts. Companies such as Nike, Apple and Walt Disney have also been hit.

The Prognosis

Previous epidemics such as SARS and MERS had a significant impact on the economy but the effect was transient. Even the worst-hit stock recovered within a year.

Sonja Laud, chief investment officer at Legal & General Investment Management, explains that, “What markets are trying to digest is how long this is going to go on and what the economic damage will be.”

On the plus side, these sudden falls have come after a very strong period for shares in 2019. So, while they may appear dramatic in the short term, the starting point for quite a few markets was an all-time high.

The best course of action?

With sensationalist headlines in the media, panic can quickly spread. There are undoubtedly going to be mixed messages. You’ll hear some people saying it’s a good time to buy shares while they are dipping, while others will recommend you sell your shares quickly and buy government bonds instead.

It may sound like a cliché but it is a case of weathering the storm. Rather than make any sudden decisions, we believe in sticking with your long-term investment plan to achieve your long-term objectives. It’s always been our ethos not to invest for the short-term. Alongside sticking to your long-term investment to achieve long term objectives, regular reviews of your holdings are paramount to ensure everything is in perfect order, even when uncertainty looms for others.

We believe in not putting all your eggs in one basket. It is our belief that diversification is key in times of uncertainty as it’s proven to reduce risk. Diversification may come in the form of holdings being in different geographical regions, asset classes and right through to the management style of certain funds.

As the saying goes, it’s about time in the markets rather than timing the market. So, while the dips may seem acute now, the picture could look very different over a ten or fifteen year time frame.

If you do have any particular concerns about your investment strategy at the current time, do not hesitate to get in touch.