When the market had a small sell off in January and then largely bounced back the following week, I felt that was a surprisingly sensible reaction to the largely unknown Coronavirus. Since then, mainly in the last week, the market has sold off heavily. Triggered by the outbreak in Italy.
Financial markets have since took the view that the virus will now be unable to be contained and will continue to spread across the world.
While I largely agree the coronavirus will spread and have a short-term effect on many businesses and a long-term effect on specific industries e.g. travel. We believe it will have significantly less of an impact on other industries e.g. property development.
One business that has seen the largest impact since the outbreak of the virus is Anheuser-Busch InBev, the company who owns the drinks brand Corona. They have announced an expected loss of profit of circa £132 million for the first quarter which is partly due to a vast drop in sales of the Corona Extra drink.
Surely some degree of madness here… Although this does demonstrate the power of branding and association just by name.
The drop in sales demonstrates how irrational people’s behaviour can be in times like this, which brings me onto the market’s recent reaction to the virus outbreak.
Last week was the worst week in terms of market losses since the financial crisis in 2008.
I believe there are mainly 3 reasons for this which are listed below.
2019 was a good year for global financial markets, even with the uncertainty of events such as Brexit and the US-China trade negotiations, especially US markets like the S&P 500 which rose circa 38%, with this in mind, when people are sat on such profits the temptation is to take money off the table when an event like this brings uncertainty to the markets.
Albeit short term uncertainty, as I don’t expect this to affect the economic outlook in the medium/long term.
There’s nothing the financial markets hate more than uncertainty whether that is a political event, the possibility of war or an outbreak of a virus that has no cure. From my experience, moments of uncertainty are usually the best times to invest.
Below I’ve listed a couple of events that caused a high level of uncertainty.
- UK votes to leave the EU. FTSE 100 down circa 9% on the day. Sterling down circa 9% too. Madness, when 70% of the FTSE100’s earning, come from outside the UK. On that day the FTSE 100 opened trading at 5,700.
- Trump becomes president. US and worldwide markets down 4%. The S&P500 has risen in value by over 60% since then (including the recent sell-off).
In the modern-day the media’s job of reporting the truth has become less and less important it seems. Do you see any of the questions that we would expect to be answered anywhere in the headlines? Questions such as:
- What’s the average age of the people that have been killed by the Coronavirus?
- Once you’ve recovered from the virus can you catch it again or is it self-vaccinating?
- Mortality rates in different countries?
I’m sure everyone reading this will have many other questions that largely remain unanswered as the media mainly focus on how many new cases there are and attempt to make the spread seem as dramatic as possible to gain more clicks on their websites.
To sum up my views on the Coronavirus.
My view is coronavirus will not change the long-term economic outlook.
The virus will most probably continue to spread and although this isn’t good news, we believe the potential impact will be significantly less than expected across the world.
Finally, the media will soon begin to focus on something else, such as the upcoming US election or EU trade negotiations or tensions in the middle east. Naturally, with less media attention, we will become less concerned about the virus (rightly or wrongly).
Be brave, stay firm and don’t panic. Everything will be ok.
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As Warren Buffett said, “The stock market is a device for transferring money from the impatient to the patient”.