Since the first reported case on 31 December 2019, coronavirus has constantly been headline news and investors will be aware that the equity markets have fallen sharply over the past few months – with the UK FTSE 100, the US S&P 500 and the Dow Jones Industrial index down significantly in February. This has led to the panic selling of stocks and shares, causing the market to dip even further.
However, dropping stocks and shares during such a dip in the market often locks in losses. This can mean missing the bounceback when it comes, making a return to the market incredibly difficult. Therefore, now is not the time to react based on fear and uncertainty.
Historically, equity markets have bouts of weakness then usually recover. In this instance, there is a strong chance that markets will recover once the various stimulus measures (including the UK Government’s measures to support businesses) start to offset some of the impact.
With new cases reported daily, disruption to industrial supply chains, travel restrictions and reduced spending due to quarantines, there is no doubt the world economy will continue to be affected in the short term. Some major companies in the UK and US – including Diageo and Microsoft – have already issued statements saying that they expect their profitability to be hit in the current year as a result of the outbreak.
This immediate fallout may sound alarming, but will not last forever.
Similar events in the past have seen full recoveries. After the SARS outbreak in 2003, there was a sharp recovery, while the crash of 1987 had recouped its value by 1989. Though the full scale and duration of the economic impact of COVID-19 remains to be seen, its rebound is likely to be more protracted than SARS, yet markets are expected to recover. This will reward calm investors with an eye on long-term returns.
It is important not to make long-term financial decisions based on the fear and uncertainty that comes with short-term volatility. Though there may be losses for some over the coming months, it is important to keep capital invested, rather than making decisions led by fear – which may have a grave effect on finances long-term.
We advise investors to look at the big picture, retaining their investments and even benefitting from the potential buying opportunities that come with these sharp falls in the market.
If you have any concerns or would like to discuss the effect of the coronavirus outbreak on your specific investments, our BKL Wealth Management team are here to answer your concerns. Please get in touch using our enquiry form.