Investment Committee Update - Coronavirus Market Movement

Market Overview

Markets have fallen sharply over the past week as investors have been spooked by the marked rise in the number of coronavirus cases outside China. It is now clear that the hopes that the spread of Covid-19 would be contained within China have been dashed, despite China’s draconian steps to halt the movement of around 50 million people. The virus has now been detected in every continent apart from Antarctica and has become a concern for all countries around the globe. As we write, there are over 83,000 reported cases, of which nearly 79,000 are within China. Whilst the number of new infections within China are slowing which, at face value, is reassuring, unfortunately the number of new cases in the rest of the world is increasing at an accelerating rate. Of most concern, however, is the growing acknowledgment that the reported numbers significantly understate the actual number of individuals that have been infected. This has two implications: the number of cases are likely to be much higher and more widespread than they appear but more encouragingly, the virus is much less deadly than the official numbers appear to show.

Economic Impact

The immediate economic impact of the coronavirus is likely to be material, given the restrictions on movement of people and goods in a highly interconnected world. It is quite possible that global GDP growth may be negative in the first quarter of 2020. However, we expect a significant fiscal response from governments around the world to boost growth. This is likely to mark the start of a growing trend of government spending from both developed and emerging countries. In China, the world’s second largest economy, we expect a swift and robust response to slowing growth, as they have demonstrated in past slowdowns; what is different to past episodes is that we expect a response from countries such as Germany, who have resisted government spending up to now.

Short-term Outlook

We expect that this volatile period will continue for some time, until there are signs that the effects of the virus on economic growth and corporate earnings are quantifiable. At some point, the stock market will look through any temporary weakness and rally, even if the news flow seems dire.

Posted by Chartered Financial Management (UK) Ltd on March 2nd 2020

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