How does Coronavirus impact your investments
Neither the world nor your portfolio is at its end.
The market duress experienced over the last few weeks is an accumulation of exogenous factors, primarily COVID-19 and its impact on global growth. This is evident in the S&P 500 Index which is significantly off its recent high, and unfortunately, the JSE is not immune to the global sell-off. We cannot profess to be experts on Covid-19 but we have observed the following:
After an incredible 2019 and a strong start to 2020, global equities were probably ripe for a correction and were looking for a reason to trend lower, but no-one expected a virus to be the catalyst. COVID-19 (caused by the latest coronavirus) is an aggressive flu that is highly contagious which has, to-date, killed at least 3,800 people. To put this into context, the current influenza season in the US has so far hospitalised 280,000 people and claimed 16,000 lives. Influenza claims the lives of about 400,000 people worldwide every year.
Social media has amplified people’s fears over COVID-19 but conversely it has also helped speed up remedial action. The urgency with which governments and health organisations around the world are tackling the virus suggests that there is a crucial need for it to be contained. The rate of infection in some countries appears to be declining but health officials say it might take months to safely say that an area is free of COVID-19.
EMOTIONS AND COLLECTIVE RESPONSES ARE INFLUENCING THE MARKET
The market is pricing as if this were an apocalyptic event, which is in fact more of a collective emotional response to an illness, than dealing with the impact on long-term economics.
As an investor, instinctively our psychological biases kick in, causing mayhem in any logical thought process. It is understandably very difficult to deal with negativity and loss aversion. The most difficult aspect of investing can simply be to maintain the discipline to adhere to our long-term investment strategy, irrespective of market conditions in the short-term.
The novel coronavirus continues to spread, having infected people in 49 different countries and now South Africa has recorded its first cases. This was inevitable due to increasing travel and economic integration between countries.
The role of an investment team is to consider the possible impact of the virus on the value of investments and on the economy. We are in contact with underlying fund managers on an ongoing basis and we continue to monitor the impact of the out break on our funds.
While there are a number of different forces at play, how they converge will determine the likely outcome for investments over the short term. Despite a significant sell-off on the JSE, we advise investors not to get too caught up in the day-to-day share price movements, particularly when they are as negative as they are now. Rather, investors should ensure that they maintain their long-term investment plan, which is to invest in equities so as to ensure their capital grows in real terms. There is no other way to ensure long-term capital appreciation.
Historically, when there is a significant sell-off, some investors panic and possibly lose their savings by making irrational decisions and therefore patience is imperative. During the Financial Crisis in November 2008, the JSE ALSI plummeted to a low of 17,814 points and in December 2009 it was 27,607 points, representing a 55% rise off its low.
We encourage you to take a deep breath and try not to panic as in the words of Warren Buffett
“If you cannot control your emotions, you cannot control your money.”
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