Coronavirus COVID-19 is here. What does it mean for investors?
The Coronavirus COVID-19 is of obvious concern to investors. Just what will it mean? At times like this, opinions abound. Commentary is ranging from:
- It’s time to invest defensively
- This is a buying opportunity for the brave
- We’re in a bubble economy that’s under threat
What we do know is that the steps taken to contain COVID-19 are impacting global supply and demand. On the supply side, factory closures, quarantining and distribution restraints are beginning to inhibit supply. On the demand side, fear, uncertainty and the restriction of movement in some markets have begun to impact demand across several industries. These aspects are measurable and objective.
Less known are the mid-term behavioural economic impacts and government stimulus reactions. How will markets react between now and when global containment is achieved? Also, over the past decade, governments have generally been active in applying stimulus measures in attempts to override negative sentiments. Of course, it is simply too early to know the downsides and upsides of these forces.
WLM’s response, particularly for those clients invested in our Goals Based Investing portfolios, has been to allocate our portfolio investments defensively. For some time now, the Dynamic Asset Investment Committee has been operating on the assumption that markets are near their peak. This means investments are managed with a view that downside risk is present. Furthermore, the diversification of portfolios decreases the probability of investment downside risk.
We do need to restate, however, that as we outlined in the opening paragraph, no-one knows what the impact will be. This is largely new territory for today’s fully globalised economies.
The best rule always in the world of investment is to remain calm. There are well documented behavioural economic studies which demonstrate that following the common emotional response to uncertainty, or buoyancy, is almost always a mistake.
WLM will keep our clients informed as this matter develops.
If you have any questions, WLM Financial advisers will be pleased to discuss your goals and circumstances in the context of the current economic environment.
If you would like assistance, please contact us.
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