By now we have all seen the headlines and disturbing images associated with the Coronavirus. There are previously bustling cities that have been turned into ghost towns, hundreds of individuals quarantined on cruise ships for weeks, and thousands of families experiencing heartbreaking loss.
We have seen and read the news stories, yet are still left wondering what exactly is it, why is it affecting the stock market, and what should I be doing about my portfolio?
Here is a quick rundown.
1. What is the Coronavirus?
The Coronavirus (COVID-19) is a viral illness that originated in the Chinese city of Wuhan, in the Hubei Province of China. It attacks the respiratory system and is primarily spread between people via droplets from coughs and sneezes.
As of February 24th there have been 79,551 confirmed cases and 2,627 deaths, with at least one confirmed case in 34 countries. The vast majority of the cases and deaths have been recorded in China, although some experts dispute the accuracy of these statistics, claiming the actual numbers in China are in fact worse. It has already killed more people than both the SARS and MERS outbreaks, both of which had an impact on global financial markets.
2. Why is it affecting international markets?
While every death is tragic, the current and potential economic impact of COVID-19 goes far beyond the number of deaths. The response of the Chinese government to the outbreak of the virus has been to quarantine affected areas and keep people away from large gatherings by forcing them to stay at home. This has temporarily shut down factories and jobsites across the country as workers are under lockdown.
With many globally integrated supply chains starting in China, this reduction in productivity could have a significant impact on the global economy if it continues for a considerable length of time or spreads to other countries. Even if there is demand for a company’s product, they may face difficulty meeting production quotas if their supply chain is affected. Another area of the economy that could face significant disruption is the tourism industry, as several nations have instituted travel bans and many potential tourists are choosing to stay home.
The IMF warned that the outbreak could reduce global economic growth by 0.1% this year, and by as much as 0.4% in China. This weekend’s news that there were confirmed “cluster” outbreaks in South Korea, Iran, and Italy reignited fears of the spread of COVID-19 and its potential impact on the global economy.
3. What should I do about my portfolio?
Market selloffs triggered by exogenous or “black swan” events are reminders that an investment portfolio should always be tailored to an investor’s risk profile, combining both the investor’s ability and willingness to take risk. It should not simply be an asset allocation derived by your age, or the amount of risk you felt comfortable with in the recent bull market.
This recent selloff following the market gains of 2019 is a good opportunity to make sure your portfolio is aligned with your risk tolerance and is set up to achieve your long term financial goals.
How We Can Help
One of our 4 core investment principles is getting your risk right. Using our tool, Riskalyze, we can easily pinpoint the amount of risk you are comfortable with and structure your portfolio to match. While exogenous events such as this can cause attention grabbing, panic inducing headlines, we believe that when you have your risk right you can stomach these large market downturns knowing that your portfolio is designed to withstand the market volatility.