As we are all very aware, the impact of Coronavirus is being felt around the world. At Holden & Partners, we have been following its impact closely and we are now writing with our views on the situation. One area that is important to note is that we are long term investors and we generally don’t make hasty changes to portfolios. We try and look past the noise and use analysis to build portfolios with diversification, through allocating assets globally and across different classes. This helps spread the risk inherent in investing. As it stands, portfolios can include equity, property, infrastructure, government and corporate bonds as well as other diversifying asset classes.
Coronavirus or its more catchy name of COVID-19 has, at the time of writing, infected globally 80,000 people and caused the death of around 2,500. The outbreak started in China and has now spread to at least 29 countries (potentially now 31) with the majority of deaths still confined to China. More recently, we have seen a spike in coronavirus cases in Italy with the authorities locking down over 50,000 people in an attempt to limit the biggest non-Asian outbreak of the virus. Although this news and further news of quarantines can be alarming, it is important to understand that these hot spot outbreaks are likely to continue. It is how these outbreaks are contained and dealt with that is more pertinent than the headline-grabbing ‘Confirmed Outbreak’. At the time of writing, Switzerland has just announced its first confirmed case with Austria also confirming infections.
The World Health Organisation has warned of the risk of a pandemic; however, the current status of the outbreak remains that of a ‘Public Health Emergency of International Concern’. For a pandemic, there has to be geographical spread and harm. At present, there is a spread but no large-scale disease or death outside of China. This isn’t to say that it couldn’t reach the levels of a pandemic it is just not there yet and might not reach it.
In the last 2000 years, the world has endured innumerable pandemics. Including smallpox, typhus, cholera and major bubonic plague. In 2020, we have never been more scientifically advanced and now we arguably have better crisis plans in place than any previous time in history.
Moving away from the virus itself to look at how it might affect global markets and economies, it is evident that the outbreak has put a dampener on the positivity that has been seen across the board following a strong 2019. Investors have been seen moving to safe-haven assets such as gold and government bonds, sending the gold price to a seven-year high and the yield on government bonds – which moves inversely to bond prices – to new lows.
There is no hiding from the fact the virus will affect businesses with declines seen in airlines, luxury good producers and card processors particularly, shares since Monday morning, the extent to the damage in other sectors is still yet to be seen but we continue to monitor it closely. It isn’t just airlines in the western hemisphere that are suffering. In the month to 13th February the number of departures out of Chinese airports – some of the world’s busiest – have seen a drop of 87 per cent. This will, of course, have a knock-on effect, particularly when considering tourism. France has already seen declines of 30-40 per cent in the number of visitors to the country compared to this time last year. In addition, it is important to consider that no one spends like Chinese tourists. This group spent $265bn globally in 2017, a figure which will be knocked by the virus outbreak.
Tourism isn’t China’s only export; it is also a huge exporter of goods. Despite the ‘Made in China’ tag being a staple for Western consumers for decades it has grown significantly in the last ten years. As of 2017, Chinese exports accounted for 28 per cent of all “computer, electronic and optical products”, a figure that will not escape headwinds but for how long and how hard we are yet to know.
As long-term investors, it is important to block out the short-term turbulence events such as these might cause. As ever, we will stick to the principles of long term and diversified investing. Investing is about accepting that the investments will go up as well as down. Inevitably turbulent times such as these can provide opportunities as some asset classes fall in value. It is very important to note that when markets do recover, the bounce back is usually quick therefore it is important to stay invested and continue to receive dividends and interest in the meantime. We will of course continue to monitor the situation as it develops and will send further updates in due course.