How Will the Coronavirus Crisis Impact the Economy?
February 3, 2020
By Tom Limoges
Asst. VP - Investments
The stock market hates uncertainty. Recent examples include trade wars, geopolitical events and natural disasters. As we witnessed over the last few weeks, pandemic fears can also raise the volatility of the markets. Many investors fear the effects of a spreading Coronavirus in China and the potential impact on the global economy.
Over the past few days and week, our clients have asked us: “What is Coronavirus? And how does it affect my investments?”
Coronavirus Outbreak: What We Know
The Coronavirus has its roots traced to a market in the city of Wuhan, China. The virus affects the respiratory system of its hosts and has an incubation period of up to 14 days. Comparisons have been made between the Coronavirus and the SARS epidemic of 2003. However, the Coronavirus appears to have spread more quickly than SARS (chart below) as it is believed that the virus can be transmitted while people show no signs of symptoms.
The death rate appears to be lower than that of the SARS, but it is possible that the rate could rise as more data is collected. The global response has been dramatic as many countries have cut off air travel and quarantined travelers that visited areas affected by the virus. So far, the number of cases outside of China have been minimal and contained.
What are the Market Implications of Coronavirus?
Assuming the outbreak is contained over the next few weeks, markets should improve over the course of the year. There are concerns that the virus outbreak will slow global growth in the near term, mainly in China. Longer term effects should be minimal. History has shown that once the World Health Organization declares a global health emergency (chart below), equity markets tend to recover. The World Health Organization declared the Coronavirus a global health emergency on Jan. 30.
What Should Investors Do?
We do not discount the human impact the pandemic has on the Chinese and global population. Relating to economic growth, the Coronavirus represents a short term risk to global growth and the volatility of the equity markets. Provided that the pandemic is brought under control in the coming weeks, markets should continue to advance as we move into the year. Our portfolios will remain fully invested.
Ironically, uncertainty is one of the few things we can be certain about in life. When the future is unclear, we can look back to the past to try to make sensible predictions and preparations. The Coronavirus has shaken people’s confidence in 2020 — but by studying the past, we can look to the future with more peace of mind.
If you have any more questions about how Coronavirus or other world events can have an impact on your portfolio, contact an advisor today.
Photo caption: People wearing surgical masks sit in a subway in Shanghai, China; where fears of a new type coronavirus pneumonia that started in Wuhan has been spreading. Credit Getty Images