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.
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For new readers:
If you need a second opinion on your investments or retirement plans, feel free to contact me here.
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Coronavirus has infected equity market. What should investors do? – by iFAST Macro Research Team, 30 January 2020
Keep calm and carry on amid Wuhan virus fears – by UOB AM insights, 31 January 2020
Coronavirus and the implications for emerging market – By Franklin Templeton, Manraj Sekhon, 28 January 2020
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
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