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  • Daniel Lee

Fundamental impacts of Coronavirus on your investment portfolio

Here’s a summary of the fundamental impact that coronavirus has and may have on your investment moving forward:


Fundamental Impact of Coronavirus

  • Lower consumption in the near term resulting in plausible depressed earnings

  • Risk of disruption for the global supply chain in the near term given China’s contribution

  • In terms of regions, Asia to be affected in a greater degree than other regions

  • In terms of industries, global travel and retail industry to be hit the hardest while healthcare, eCommerce and internet companies are set to benefit from the outbreak


Negative effects to be temporal:

  • Rapid response by government bodies to contain the virus

  • Fiscal budget 2020 for many Asian economies will likely to be expansionary to support economic growth

  • Consumer confidence level is still high while disposable income growth remains robust

  • Digital consumption to offset near-term dip in traditional retail sales

  • Recovery might take longer as compared to prior virus outbreak given China’s current economic size and contribution to the global economy

Why we as investors should not panic:

1. Prior virus outbreaks did not derail economic growth and output.

2. Though affected in the short-run, prices tend to recover in the long run once the number of new cases starts to decline.


Global equity price behavior during outbreak (source: UOBAM insights)

Furthermore, the fatality rate of Coronavirus appears to be relatively less fatal as compared to the previous virus outbreak.

Therefore, the risks to economic fundamentals may be relatively lower unless there is a mutation in the coronavirus making it as deadly as that of the Spanish flu in 1918 that wiped out 50-100 million people worldwide.


However, it is important to acknowledge the fact that SARS episode followed a period of equity market downturn, which troughed in late 2002 (S&P 500 Index)-early 2003 (MSCI ACWI) before a multi-year recovery as opposed to the current situation where we are nearing the peak of the economic cycle.


For existing clients:

Long term strategy remains unchanged.

Given the current market valuations and the fact that we are in the early stages of the coronavirus outbreak, I will not be initiating any tactical buy call for now.


If you have any questions, just drop me a WhatsApp or telegram message!


For new readers:

If you need a second opinion on your investments or retirement plans, feel free to contact me here.


Do remember to share this article and subscribe to keep yourself up to date with investment insight.


Alternatively, you can Join my telegram channel to receive first hand updates: https://t.me/joinchat/AAAAAFVEzUiPA4IgQEm4vA

Sources:

  1. Coronavirus has infected equity market. What should investors do? – by iFAST Macro Research Team, 30 January 2020

  2. Keep calm and carry on amid Wuhan virus fears – by UOB AM insights, 31 January 2020

  3. Coronavirus and the implications for emerging market – By Franklin Templeton, Manraj Sekhon, 28 January 2020

Disclaimer:

This article is meant to be the opinion of the author and is for information purposes only.

This article should not be seen as a financial advice

This advertisement has not been reviewed by the Monetary Authority of Singapore