Coronavirus – the financial symptoms

In the modern connected world, the spread of any new disease can be frighteningly rapid. The coronavirus, or as it’s official known Covid-19, certainly makes the fears seem grounded.

It is too early to say quite how dangerous the virus is, although with its long incubation period, it certainly looks much worse than first feared. But along with the human suffering the world is already feeling the financial symptoms.

Global stock markets sunk this week after a spread of coronavirus cases renewed fears about potential economic damage.

Last weekend, finance ministers from the G20 group of the largest industrialised nations acknowledged the impact of the virus on the global economy and said they would take further action if the outbreak intensified. Markets seem to echo the view.

On Monday, the UK’s FTSE 100 share index closed 3.3% lower, the sharpest drop since January 2016.  The main American indexes fell by around 3%, and in Italy, which has seen Europe’s worst outbreak so far, the Milan stock market plunged nearly 6%.  Indexes have continued to fall – the FTSE dropping through the psychologically significant 7000 level after Wednesday’s trading, spurred by more bad news with the first victims in the US and South America, and Saudi Arabia closing its borders for pilgrims.

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Is this an overreaction?

Markets can be hit by seemingly irrational fears, but this time there is some cold logic behind the falls.

There are three factors in play. The first is the fact that large parts of China are in lockdown. The production capacity of the world’s largest manufacturer is compromised. Companies like Nike and Apple, which depend on Chinese factories cannot get the products they need. Such is the importance of Chinese industry that supply chains around the world are being disrupted.

At the same time, demand from Chinese consumers for imported goods is drastically reduced. From car companies to the Disney corporation, demand is down and share prices may be falling with it. Even if the authorities in China get the virus under control, hopes of an immediate return to growth are slim.

The second is that the disease has spread, and with countries such as South Korea, Iran and even Italy now struggling to contain coronavirus, international trade and travel is starting to

suffer. Airlines are seeing a sharp fall in passenger numbers, and a consequent fall in share prices. In the UK, the biggest drop in the FTSE 100 on Monday was from EasyJet, which sank 16.7%, and has continued to fall since, while TUI and British Airways were both down by more than 9%. Reduced tourism and business travel has a knock-on effect to many other sectors. Oil prices, a barometer of economic confidence are already falling.

The third is harder to gauge at this stage. Markets were initially complacent, but as the efforts of the Chinese authorities to contain the disease fail, they are becoming worried. The effect on the global economy might be temporary. But the World health Authority has recommended that the world prepare for a pandemic, although it has fallen short of declaring one. If borders start to close around the world the effects on global prosperity could be hard to calculate.

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What can you do?

In times of economic uncertainty, many investors have traditionally turned to defensive equities, and safe havens such as gold, US dollars and US Treasury bonds amid the virus’s spread. The price of gold has already hit its highest level in seven years.

It could be time to reappraise your holdings – but equally, panic selling must be avoided if you are to preserve your wealth.

At Continuum we have the investment expertise to help you manage your portfolio, and your pension funds.  We can help you look at defensive holdings, cash and other investments, and identify those sectors where it might make sense to divest.

With a Continuum expert on your side, we can help you have a financial plan in place to prepare for any global emergency.

The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.

The value of investments can fall as well as rise and you may get back less than you invested.




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