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Kearney Group Article Navigating Coronavirus 2020 03 06 01

Navigating coronavirus.

 

Executive summary.

 

  • As of March 5, 2020: 95,000 reported cases of COVID-19 and 3281 deaths.
  • Economic growth in China has slowed dramatically, following forced closure of businesses and mandatory quarantines.
  • An increase in the number of confirmed cases outside China and general fear and uncertainty has prompted concerns about the prospect of a global economic slowdown and a sharp sell off on investment markets.
  • Volatility can be expected until the virus is contained, but markets are expected to recover in 2020.
  • Our portfolios are well diversified and include defensive assets which provide a buffer in times of market stress.
  • We advocate remaining invested in line with your long term strategy.

 

Background.

 

It’s been nearly impossible to avoid news of the recent coronavirus (COVID-19) outbreak.

Two months after first detection in Wuhan, China on 31 December 2019, the WHO has confirmed over 95,000 reported cases of COVID-19 and 3281 deaths around the globe.

As with epidemics of the past (Ebola, SARS, H1N1), concern around coronavirus is causing all sorts of skittish behaviour – people are changing their travel plans, stockpiling groceries and toilet paper, and now, changing their spending patterns. The expected short term economic impact of containing the virus is also of growing concern, and for these reasons, we’re seeing heightened volatility across global investment markets.

 

Coronavirus, global economic growth and investment markets.

 

Following the initial outbreak in Hubei province, the Chinese government took steps to contain the virus. This included the forced closure of businesses throughout China, and quarantining citizens to minimise the spread of infection. As a result of these measures, economic growth in China slowed dramatically.

Until last week, it was believed the outbreak was mostly contained to the Chinese mainland. In subsequent days, however, we’ve seen a large increase in newly confirmed cases outside China. While we wait to see how other countries respond (and whether they’ll attempt to slow transmission with policies similar to those enacted in China), there is growing concern around the possibility of a global economic slowdown and that’s prompted a sharp sell off on investment markets.

There is wide consensus that economic growth in China will be negative for the first quarter this year and global economic growth is likely to slow. Individuals will delay consumption and travel, and businesses will forgo activities and investment until the spread of the virus is controlled.

We expect the slowdown to be transitory, and recovery will occur in 2020 as stalled supply comes back online and pent up demand for goods and services generates a rebound in spending later in the year.

It is encouraging to see a globally coordinated government response to the spread of coronavirus, with the G7 finance ministers stating they are ‘ready to take actions, including fiscal measures where appropriate, to aid in the response to the virus and support the economy during this phase’.

This week we have also seen interest rate cuts by the RBA and the US Federal Reserve which should be supportive of economic growth.

Our investment portfolios are well diversified and include defensive assets that provide a buffer in times of equity market stress. They’ve been designed to withstand just this type of scenario.

What does this mean for investment portfolios?

 

Kearney Group Private Wealth builds well diversified investment portfolios that include assets which will provide a buffer in times of equity market stress. Higher allocations to cash, fixed income investments and defensively-positioned Australian and International companies are included in our portfolios for just this type of scenario.

As such, we believe our portfolios are well structured to weather the current market volatility and do not intend to make any changes to current asset allocations at the moment.

Following the containment of coronavirus, we expect markets to recover, and therefore, advocate remaining invested in line with your long term strategy.

If you are drawing an income stream from your portfolios, there should be adequate defensive funds from which you can draw during the coming months. This should minimise the need to sell growth assets (shares) and give these assets time to recover their full value.

If you are still accumulating investments, the recent market correction could provide an opportunity to purchase additional assets at discounted prices.

 

Where to from here?

 

If you have any questions or concerns, please do not hesitate to contact us. Your advisory team would be happy to discuss.

Speak to the team.