It’s been a torrid week for the financial markets, as investors assess the potential impact of the Coronavirus. Plenty of commentators have suggested that the pandemic may tip the global economy into recession – and certainly, enforced quarantines and the closure of schools and public spaces will dent growth. While we are all panicking about our health, should be panicking about our portfolios as well?
- Global stock markets have fallen in the face of the global pandemic
- Panic-selling is likely to do little to preserve capital
- There may be selective opportunities amid the rout
The FTSE 100 has dipped below 7,000 for the first time in 12 months, falling 6.4% this week alone. Luxury, leisure, technology and trade stocks have taken the biggest hit. As usual, the biggest problem is uncertainty. There is no precedent for the virus and its impact on companies and the economy.
The normal rules apply when there is widespread fear. Investors should not be panic-selling out of equities, but maintaining their usual discipline of regular savings and a balanced portfolio. Hargreaves Lansdown points out that within four years both the FTSE 100 and the S&P 500 had shrugged off the losses of the global financial crisis, though added that it is worth checking whether your portfolio includes ‘safe haven’ assets such as gold.
Of course, for braver investors, there is a question as to whether they should be buying at these new low valuations (with all the usual caveats about ‘market timing’, of course). Certainly, the sell-off has been largely indiscriminate and there will be bargains.
Asia would seem to be the first place to look. The Shanghai Composite dropped 10% on 3rd February alone with almost every stock falling. The Chinese economy will undoubtedly see a hit from the virus, but cases are already tailing off and there are signs that business is returning to normal. Elsewhere, LVMH shares are down 11.5% in the past five days alone. Is this luxury goods behemoth really likely to see such a profound dent to its profits? Cruise liner company Carnival is down 19.5% over the same period. Some will see real problems, but investors can take advantage of the market’s tendency to over-react.
Investors would be well-advised to take the Warren Buffett view, who said this week that they should not buy or sell based on today’s headlines: "If it gives you a chance to buy something you like and you can buy it even cheaper, you're in good luck," he said. "You can't predict the market by reading the daily newspaper."
