Coronavirus Market Context

As the Coronavirus spreads across the UK there is increasing economic uncertainty.  As with previous health crises we think that financial markets will overcome in the long term.  

The news this week that Coronavirus has started to impact daily life and business life in the UK, shows the scale of the task now facing global authorities as they race to manage its impact.

There are two things which make it tough at the moment – the speed with which the virus is spreading and second the unknown which comes with any new disease, especially its longevity.

Having said that, it is important for investors to stay focussed on the bigger picture in the longer term. This is not the first health crisis that financial markets have endured.  As difficult as it may be investors shouldn’t over react when they see the often distressing news headlines. 

Virus spreading across the globe

There are thoughts that the full economic impact might have initially been underestimated however, it now clear now that global growth will certainly be affected in the near future whilst trials for a vaccine are underway, we’re unlikely to see any results much before April. 

At the beginning of the year it was thought there would be some profit-taking in the first quarter due to the highs of December 2019, and that was before we knew about the virus. So, in some ways investors could see this period as a bit of a reality check.

The depth and duration of the economic impact is uncertain but should be as temporary as the coronavirus outbreak itself and will eventually disperse.

Wider Investor Context

So far there hasn’t been a significant economic impact outside of China yet.  Despite the rate in which the virus is spreading the latest data suggests that Japan has taken a bit of a hit but this is not generally the case in other economies yet.  In fact UK manufacturing indicators rose in February.

The corona virus outbreak will without a doubt affect Q1 economic activity of the new decade.  The scale of the falls might feel dramatic in the context of recent years, it is hardly entirely new.  Investors have seen five declines of greater than 15% in the period since the global financial crisis.

“We live in a global economy now and with our supply chains being so intrinsically connected the UK cannot be seen as an isolated market.  There will be a deterioration in our economy and there will be bumpy times ahead.  There is a growing concern that our supply chains will be disrupted, however fundamentals will remain stable, low bond yields and accommodating central banks should help to ride out the short term economic storm”, says Richard Eastwood, Partner and  Head of Financial Services for Pearson Solicitors and Financial Advisors.

“Whilst we cannot guarantee anything, I’m thinking once the current climate has moved on there is enough liquidity in the markets to support a longer term bounce back”, he adds.

Overall Outlook

Long term thinking can make a real difference in situations such as this.  The impact that COVID-19 will have on financial markets is impossible to predict but as always, it’s important for investors to consider long term goals, not to overreact to headlines and stay invested.

As always we will keep in touch but if there is any more information you’d like or you’d like to discuss any financial matters please get in touch with our Financial Services team on 0161 785 3500

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Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.

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