F.E.A.R. – Ian Brown

Investing
Views & insights

Clearly there is growing international concern over the spread of the coronavirus and quite obviously risks have risen materially with the spread of the virus outside of China.

Share

27 February 2020 | 3 minute read

Clearly there is growing international concern over the spread of the coronavirus and quite obviously risks have risen materially with the spread of the virus outside of China.

If we narrow the prism of this article solely to the impact on financial markets, it was evident that up until the weekend investors saw the outbreak largely as a Chinese issue and that it would be contained. Through this lens, the apparent lack of reaction from markets was arguably rational and understandable. However, with the virus spreading, it is obvious now that the impact on the global economy will be more profound.

Once again looking through the narrow prism of investment, recognising the tragic human consequences of the outbreak, the question many investors are asking is whether they should make any changes in their investments?

In short our answer is no, provided of course investors have a sound investment plan that they can stick to.

Whilst we can’t be definitive, it is highly unlikely that the virus will have a long term economic impact and we should expect the economy to ultimately recover from the inevitable sharp slowdown.

We may, indeed, see slowing to the point of recession in the near term and it may be the case that the coronavirus could be with us for some time. We, of course, don’t know and believe it is foolhardy engaging in speculation.

What we do know is that we have seen many outbreaks in the past with relatively short lived economic impacts. Indeed, my inbox is full of reports illustrating forward returns after virus outbreaks, showing that markets move on quickly, posting strong returns after the initial panic.

We should stress though that we have no idea whether the impact of the coronavirus will be similar or not to previous outbreaks. Indeed, even the experts don’t know.

Turning to what we do know, it is clear that Chinese authorities are stimulating their economy pretty aggressively and that industrial activity in China is resuming. Interesting, Apple have also started re-opening stores in China.

We also know that governments and central banks globally are showing signs of working together and that policy is increasingly stimulatory. If people stay at home, stimulatory policy won’t help much but should the outbreak be contained we should expect a strong economic recovery.

It is also important to note that when we invest in equities we are assessing the discounted value of multi decade cash flows, so the impact of a decline in any given year is not that significant, unless we believe future growth is impaired.

This is not to say equity markets can’t correct further. So far we have seen a pretty ‘normal’ correction, with the world equity market in euro down c.9% from its recent high. On average the equity market corrects by 10% or more once a year, so nothing unusual here at all.

It is quite possible that we see a further decline but also quite possible that we see a very strong rebound in relatively short order.

The natural conclusion from this, to our minds, is simply to stick to our plan, investing in assets that we believe will deliver attractive long term returns in excess of inflation.

Ian Quigley
T: +353 1 421 0300
E: ian.quigley@brewindolphin.ie


Disclaimer

Brewin Dolphin Capital & Investments (Ireland) Limited (trading as ‘Brewin Dolphin’ and ‘Brewin Dolphin Ireland’) has issued and is responsible for production of this publication. Brewin Dolphin is authorised and regulated by the Central Bank of Ireland. Brewin Dolphin is a member of Euronext Dublin and the London Stock Exchange.

This publication should be regarded as being for information only and should not be considered as an offer or solicitation to sell, buy or subscribe to any financial instruments, securities or any derivative instrument, or any other rights pertaining thereto (together, ‘investments’). This publication is classified as a ‘marketing communication’ in accordance with the European Union (Markets in Financial Instruments) Regulations 2017. This means that (a) it has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and (b) it is not subject to any prohibition on dealing ahead of the dissemination of investment research. Brewin Dolphin does not express any opinion as to the present or future value or price of any investments referred to in this publication. This publication may not be reproduced without the consent of Brewin Dolphin.

The information contained in this publication has been compiled from sources believed to be reliable, but, neither Brewin Dolphin, nor any of its directors, officers, or employees accept liability for any loss arising from the use hereof or makes any representations as to its accuracy and completeness. The information contained in this publication is valid as at the date of this publication. This information is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the matters discussed herein.

This publication does not constitute investment advice and has been prepared without regard to individual financial circumstances, objectives or particular needs of recipients. Readers should seek their own financial, tax, legal, regulatory and other advice regarding the appropriateness or otherwise of investing in any investments or pursuing any investment strategies.

An investment in any of the investments discussed in this publication may result in some or all of the money invested being lost. Past performance is not a reliable guide to future performance. To the extent that this publication is deemed to contain any forecasts as to the performance of any investments, the reader is warned that forecasts are not a reliable indicator of future performance. The value of any investments can fall as well as rise. Foreign currency denominated investments are subject to fluctuations in exchange rates that may have a positive or adverse effect on the value, price or income of such investments. Certain transactions, including those involving futures, options and other derivative instruments, can give rise to substantial risk and are not suitable for all investors.

Brewin Dolphin (or its directors, officers or employees) may to the extent permitted by law, own or have a position in the investments (including derivative instruments or any other rights pertaining thereto) of any issuer or related company referred to herein, and may add to or dispose of any such position or may make a market or act as a principal in any transaction in such investments or financial transactions.

Brewin Dolphin’s conflicts of interest policy is available at www.brewin.ie/conflicts-policy-summary


The value of your investment may go down as well as up.
Past performance is not reliable guide to future.
You may lose some or all of the money you invest.
Our investment may be affected by changes in currency.
Any income you get from this investment my go down as well as up.

Tagged with

You may be interested in

Investment update May 2023

Videos 9 min read
Investment update May 2023

Perspective Magazine Spring 2023

Perspective magazine 15 min read
Perspective Magazine Spring 2023

Probability

Investing 3 min read
Probability

The value of your investment may go down as well as up.