We don’t yet know how dangerous the new coronavirus disease (COVID-19) that was first reported in Wuhan, China, on 31 December 2019 is, and we won’t know until more data becomes available. What we do know is that the probability of dying if infected by the virus is significantly higher for vulnerable members of the population – elderly people or those with existing respiratory or immune problems. The virus can cause pneumonia and those who have fallen ill are reported to suffer coughs, fever and breathing difficulties. Recovery depends on the strength of the immune system and many of those that have died were already in poor health.
From the table below it is very clear that the current mortality rate decreases significantly for the younger population:
With the above information at hand, and despite the US stock markets falling more than 7% over the last few days there does seem to be an orderly attempt by the market to deal with a serious issue. Rather than panic, Banks and Investment Groups are doing their best to work out the potential scale of the problem, and they are largely doing so sensibly.
Carrick Wealth views the current market sell-off as a recalibration of economic growth expectations, negatively impacted by the unexpected outbreak of the coronavirus disease, rather than excesses in the market. Losses to date are centered on sectors that obviously stand to be affected most, such as airlines, hotels and cruise lines, and by companies that have specifically alerted that they expect damage to their numbers, such as Apple Inc. and MasterCard Inc.
However, there is still extreme uncertainty over exactly how much economic damage the effort to contain the virus will eventually cause and further bad news, for example a report of increased cases of infection in the US, could be a catalyst for further sharp downturns due to heightened global growth concerns. The virus has slowed China’s demand for imports with factories being closed and internal consumption has also slowed down. The ripple effect of this will be felt across the world and will be more pronounced in Emerging Markets in particular.
We have seen strong buying into safe haven assets such as the USD, Gold and US Treasuries and expect this trend to continue in the short term. We are also mindful of Central Banks stepping in to provide support which China has already been doing by including cheap credit and targeted tax cuts to small firms and the private sector.
Along with the rest of the world, we will be monitoring the situation very closely and adjusting our already conservatively positioned portfolios as necessary.
This article reflects the private opinion of the author and should not be construed as investment advice.
Anthony Palmer CA(SA) is Head of Investment Strategy at Carrick Wealth and is a qualified Chartered Accountant with substantial experience in the financial hubs of London and Wall Street.
Carrick Wealth is a registered South African financial services provider specialising in South African and international financial planning and integrated wealth management solutions. Carrick is also licensed in Zimbabwe and Malawi, and holds three global licences in Mauritius.