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Riding out the Coronavirus storm

Ed Monk

Ed Monk - Fidelity Personal Investing

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.

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It looks like one of those weeks when investors are best served by ignoring the headlines.

Global stock markets have opened on Monday with losses as investors begin to price in the likely economic impact of the Coronavirus outbreak.

The weekend brought bad news from South Korea, Iran and Italy, all of which reported cases of Covid-19 with no apparent connection to people travelling from China, where the illness first emerged. Italy has imposed quarantines in two regions in the north of the country - the first such restrictions to be implemented in Europe.

The FTSE 100 was down more than 3% in Monday morning trading, with other markets in Asia and Europe suffering as well. The prospect of limitations on travel has hurt airlines and travel companies. The bigger picture is that markets are pricing in a significant hit to Chinese economic activity which will now feed through to demand in the global economy.

As risk-assets like shares have fallen, safe havens have moved higher. The gold price has risen to a seven-year high, up 2% on Monday to $1,678 an ounce.

For investors watching the headlines nervously this morning, here’s a few things to bear in mind…

Worsening news on Coronavirus was likely and will continue

This isn’t the first Coronavirus-related fall that stock markets have suffered. A month ago markets also suffered heavy falls as first news of the outbreak began to emerge. Those losses have been recovered in the weeks since, and this looks to be the beginning of a pattern - markets are likely to rise and fall as the headlines improve and worsen.

We should expect further volatility, particularly given that markets have entered this period near-record highs. Profit-taking looked inevitable with or without Coronavirus.

Short-term factors are not the same as long-term fundamental change

Markets are most concerned with the impact on economic activity. Any news that travel or supply chains are to be restricted will probably lead to falling prices because these things will hit the short-term trading performance of companies. That undoubtedly hurts investors but it is not necessarily a predicter of a medium and long-term slowdown.

Coronavirus may hurt demand for many months but much of that demand will return once the outbreak is brought under control.

If you sell - when will you buy again?

Lots of investors will be eying the sell button today. Before they hit it, however, they should ask themselves - ‘if I sell, when will I buy in again?’

There will always be bad news for markets to worry about, so those hoping to sell down investments now will almost have to buy back in at a time when the outlook is still uncertain.

That’s the hard bit about trying to time markets. You don’t just need to get one call right, you need to get two. Selling out is the easy bit because you can do it and swim with the crowd at the same time. Buying back in, on the other hand, requires a contrarian approach that few, when it comes to it, are comfortable adopting.

Regular savers should welcome some ups and down

If you invest on a regular basis, the ups and downs in the market are to your advantage. When markets fall you automatically benefit by getting more shares or units for your money. This is known as ‘cost averaging’ because it can considerably lower the average price you pay for your investments. And, if you buy when prices are low, you reap all the rewards when they rise again.

Keep diversified

As we have seen in recent days, there are always some assets that do well when others do badly.

Having a mix of assets from shares and funds to bonds and cash, across different sectors and geographies is the best way to ensure that one spell of volatility doesn’t take your entire portfolio down with it. Spreading your assets means sharing the risks and is an essential for any investor.

More on opportunity in uncertain times

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

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