We would like to provide you with a brief overview of investment market developments with regards to the recent coronavirus news.
News and financial headlines are being dominated by the coronavirus outbreak in China, which has spread to over 18 countries worldwide. North American markets initially sold-off on the news, but have been regaining ground. We certainly expect that they will continue to move on additional information as it is released. Ultimately, the big question that needs to be answered is whether the virus could graduate to a pandemic (very serious for the global economy) or remain fairly small and regional (limited impact to economies outside main affected areas) like previous viral outbreaks (e.g. SARS (2003), H1N1 (2010), MERS (2017)). It is too early to make definitive conclusions on the outcome, but we do think there are some pertinent facts to highlight, using its closest comparable, SARS, as an example:
- The novel coronavirus is spreading faster than SARS, but with lower mortality rates (2-3% vs. 10%).
- Protocols for dealing with the Chinese outbreak are much improved – large scale quarantines after a month of the initial outbreak vs. three to four months for SARS.
- Asian markets were down ~10% during the SARS outbreak, but regained losses after it was controlled.
- North American markets were down 2-3% during SARS, but under a much weaker economic climate and during the run-up to the Gulf War with Iraq.
Areas of the market that could be most impacted by the coronavirus are the oil, materials and transportation sectors (particularly airlines and cruise lines), as travel restrictions are going to happen whether or not the virus spreads. We have very little to no exposure to these markets in portfolios. Likewise, Chinese and other Asian stock markets will feel increased pressure as trade and commerce are curtailed for a period of time. What positions do we hold within our portfolios that potentially reduce volatility during these periods of heightened uncertainty? Areas of the market like defensive and interest-sensitive sectors such as utilities, consumer staples and real estate, can certainly provide protection during these crises.
Conclusion: It is still too early to make any definitive calls on the investment implications of this new coronavirus on North American stock markets, but the best defense for those investors looking to act is to ensure portfolios are well diversified and holding high quality investments.
We would like to thank to you for your continued trust in us and for giving us the opportunity to assist you in working towards your financial goals. Should you have any questions about your investments or the market outlook for the coming year, please remember that we are just a phone call away.