Immunising investment portfolios for Coronavirus

Wealth ManagementInvestmentsInternational BusinessTrade and Exports

10 March 2020

Just as the uncertainty caused by the US-China trade conflict has begun to subside, a new risk for the global economy has emerged in the form of the 2019 novel coronavirus (2019-nCoV) disease. In recent days, the potential negative financial impact of Coronavirus has hit the global financial markets resulting in significant share market declines.

In this Coronavirus update, we outline the potential economic and financial impacts and outlook, and the key take outs for you, as an investor.

Economic and Financial Impacts

Global supply chains are and will continue to be disrupted:

While there are still many unknowns, we are cautious about the near-term impact of the coronavirus on Chinese growth, global growth and U.S. growth. China currently accounts for over 30% of global manufacturing value-add, so these disruptions are likely to affect global supply chains.

US Q1 GDP growth lower on lesser exports:

Based on early estimates of the coronavirus’ near-term impact on Chinese economic growth, once business reopens as usual in China, we expect activity to rebound and any transport bottlenecks to clear. A prolonged period of Chinese activity disruption however would have a material impact on global and U.S. growth.

At the moment, our base case is for Chinese growth to slow down significantly (with nCov causing a negative shock to Q1 GDP growth), with a likely rebound once the spread is brought under control and normalization thereafter. Generally, we would expect the coronavirus to reduce near term consumption and lead to pent-up demand, with a negative short-term impact and a rebound as the situation stabilizes.

Key take outs for investors

Despite the continued spread of the coronavirus, US and European equities have reached record highs through the initial stages of the outbreak. This is a key take out for investors to glean from the market response to the outbreak, particularly since reacting to unexpected events in the wrong way could damage your chances of long-term investment success.

  • Hold your nerve and remain invested. If you have a long-term investment plan, then stay with the plan. Instead of selling out during uncertainty, staying invested through a diversified portfolio can mitigate idiosyncratic (in this case event-risk) risks and this will help ensure a long-term focus in line with your broader financial plan.

  • Filter out the noise from headlines about the disease and focus on the likely economic consequences. The short-term impact may prove significant, but also likely short lived as built up demand may spur a sharp recovery.

  • Avoid vulnerable stocks and/or sectors like airlines, casinos, hotels and focus on those that are likely to benefit in this environment like online retailers, as more people stay at home. Findex portfolios have professional investment managers who are able to react and pivot their portfolios in reaction to potential threats and opportunities.

  • If you are about to invest, consider phasing into the market.

No portfolios are immune from the risks of a global economic slowdown or significant disruption to a multitude of industries that look likely to face severe short-term downturns in demand. Having a portfolio that is diversified across very high-quality assets is your best defence in any significant dislocation event.

Findex model portfolios are constructed using some of the best investment managers in the world and monitored by the Findex Investment Committee.

Contact your Findex Adviser if you have any questions or require assistance with your investment portfolio.

Findex has developed a Government Stimulus Health Check and free Business Wellbeing Toolkit to help businesses manage potential risks and take full advantage of eligible stimulus assistance. Book your Health Check here.

This information has been prepared by Findex Advice Services Pty Ltd ABN 88 090 684 521 AFSL 243253. While all reasonable care is taken in the preparation of the material to the extent allowed by legislation Findex Advice Services Pty Ltd accept no liability whatsoever for reliance on it. The document contains information which may include general advice. Please note that it does not take into account the objectives, financial situation or needs of any person. You should consider whether the information is suitable for you and your personal circumstances and seek professional advice before acting on any material. Before you make any decisions in relations to a financial product, you should obtain and read the relevant offer document or product disclosure statement. All information, opinions, conclusions, forecasts or recommendations are current at the time of compilation but are subject to change without notice. This report includes opinions, estimates and other forward-looking statements which are, by their very nature, subject to various risks and uncertainties. Actual events or results may differ materially, positively or negatively, from those reflected or contemplated in such forward-looking statements. Findex Advice Services Pty Ltd assumes no obligation to update this content after it has been issued.

March 2020