Like the rest of us, the stock market has taken a while to fully process the likely impact of the Coronavirus.
News overnight that Donald Trump is to impose a 30-day travel ban between Schengen-area European countries and the US came as a shock and markets have tumbled again this morning. This reflects the realisation that containing the outbreak really will mean restrictions that limits economies in a direct way.
The severity of the reaction - the FTSE 100 is down around 5.7% at time of writing this morning - perhaps also indicates that investors understand that this will not be the end of the action. In the UK, the Government is preparing to enter a new ‘delay’ phase in the fight against Coronavirus which could see more draconian advice about limiting travel and social contact, and we should expect similar measures in the world’s largest economy - and most other places - before too long as well. Moves in Ireland today to close schools show the direction of travel.
Anyone who believed such measures would not arrive has not been paying attention. Many of us like to pride ourselves on our adherence to expert advice - and deride others who ignore it. Well the expert advice right now from the World Health Organization is that the outbreak is a pandemic - and that pandemics cannot be truly controlled. But also know that the same World Health Organization has said that two of the countries which account for the most recorded cases - China and South Korea - now have significantly declining epidemics within their own borders, and that ‘several countries have demonstrated that this virus can be suppressed and controlled’.
Clearly, we are some way off that being the case globally and the news is unlikely to get any better for many more weeks, but each day of bad news will hasten the action necessary to control the spread of Coronavirus and move beyond the outbreak.
In yesterday’s Budget from the UK Government we learned of a £12bn package from the Treasury to stimulate the economy in response to Coronavirus, but there was also a huge splurge of extra money for infrastructure like roads. While those measures were soon overtaken by the news from the US, they indicate the effort nations will now make to girder their economies. More may be required but it indicates the depth of economic action that can be taken.
It still may not be enough to stave off recession. Markets are clearly pricing in a severe downturn and the suddenness of stock market falls reflect that. Yet rarely has there been a cause of economic stress which is so clearly defined as Coronavirus. We know what the cause of the problem is and we know the action, however disruptive, needed to get past it. That’s a key difference between now and previous crises.
Prior to the arrival of the outbreak (remember that?) markets had mostly been worried about trade wars, and here in the UK about the economic fallout from Brexit. One potential benefit from the current turmoil is that we better understand that the world has plenty of challenges to throw at us which are completely beyond our control, so inventing challenges of our own makes little sense. If they are not already, political leaders will be desperate to remove any and all barriers to growth.
How you approach your investments through this period should reflect how you no doubt approach the rest of daily life. Understand the risks, prepare for disruption, follow the advice - but be confident that life will return to normal.
In practical terms that means continuing regular investments so that you stand ready to reap the rewards of buying in at today’s lower prices and staying diversified so that you benefit from the recovery whenever and wherever it comes.
Calmness beats panic.
More on Coronavirus and volatility
Five year performance
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Source: FE, as at 11.3.20, total returns in local currency
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Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.