The coronavirus is scary – but it's irrelevant to your investments

The spread of the coronavirus is causing alarm around the world. And, while it could be a serious short-term threat to human health, it’s not something that should affect your investment decisions. John Stepek explains why.

“World financial markets rocked by China coronavirus”...  “Global markets swoon as lethal virus in China spreads”... “China stocks plunge after authorities lock down Wuhan”... those are just some of the business headlines we’ve seen as the outbreak of coronavirus in China starts to spread across the world. And, of course, the newspapers’ front pages are much, much more aggressive in their sensationalising of the story. 

Is this something that you, as an investor, need to worry about? The short answer is “no”. Horrible things happen in the world all the time. But when it comes to investing, disease outbreaks, terrorist attacks, and even wars, can largely be placed in the same category: they are disruptive, they are tragic, they have a potentially significant human cost, but they are in the short term usually localised and frequently priced in rapidly. 

Take the SARS outbreak of 2003, for example. That was bad – worse so far than the coronavirus outbreak. It grabbed a lot of headlines and it did have an effect on economic growth in the areas and sectors that were hardest hit. It was a disaster for an airline industry still reeling from the US terrorist attacks of September 2001. And it was estimated to have knocked between one and two percentage points off Chinese GDP growth in 2003 (though bear in mind that Chinese GDP was a lot smaller back then).

Coronavirus could certainly put a dent in Chinese activity. It could also affect the travel industry. Equally though, as the researchers at Capital Economics point out, if you want to worry about something in China, you’d be better off worrying about a probable slowdown in the construction market, amid “tighter access to financing and subdued sales”.   

Just to be very clear in our hypersensitive times – none of this is to diminish the seriousness of the situation or the human cost here. Global pandemics have happened in the past and they have been utterly catastrophic. The Black Death arguably changed the course of history; the Spanish Flu in 1918 killed more people than World War I.  

And if you’re a short-term trader who likes to gamble then there may well be opportunities out there. Gold likes bad news, the travel industry will take a hit from restrictions on movement, and there are probably biotech companies out there that will get a short-term share price boost simply because they are conducting research that is vaguely related to the terms in the headlines.   

But none of these things matter from an investment point of view if you consider yourself to be a long-term investor. If we’re looking at the Black Death, you have more important things to worry about (and physical gold is the thing you want to own a bit of). If it’s closer to SARS, or the various bird flu outbreaks we’ve seen, then there’s nothing to do, bar ride out the volatility.  

And if you are sitting there today, as an ostensibly long-term investor, looking at your airline stocks or Chinese stocks and wondering if you should sell them – well, that suggests that you aren’t sure why you bought them in the first place. 

Because I can tell you one thing for sure, when you invested in those assets, your rationale was definitely not: “I’m buying these because I don’t think there’s going to be a pandemic in the near future."

So if this describes how you’re feeling, then it’s time to review your portfolio and put a sensible asset allocation plan in place. (We’ve got more on that here). 

Recommended

Stockmarkets shrug off turbulence
Stockmarkets

Stockmarkets shrug off turbulence

Stockmarkets have hit their first bout of turbulence of the year, but most are clinging onto January’s gains.
4 Feb 2021
Expect more turbulence as the market calls central bankers’ bluff
Stockmarkets

Expect more turbulence as the market calls central bankers’ bluff

With bond yields climbing and stockmarkets sliding, markets are hoping central bankers will step in again to repress interest rates – but that won’t …
26 Feb 2021
Investing beyond China: how to buy into wider Asian markets
Investment trusts

Investing beyond China: how to buy into wider Asian markets

There are several reasons to be sceptical about China’s development, says Max King. What’s more, there is vast potential in other regional emerging ma…
26 Feb 2021
The MoneyWeek Podcast: strategic metals, the commodities supercycle and the electrified future
Commodities

The MoneyWeek Podcast: strategic metals, the commodities supercycle and the electrified future

John Stepek talks to Dr Paul Jourdan, CEO of Amati Global Investors, about investing in the metals needed for the post-oil electrified world, the impo…
26 Feb 2021

Most Popular

The days when you could get 7% from your bank are long gone – so what do you do?
Bitcoin

The days when you could get 7% from your bank are long gone – so what do you do?

With interest rates at rock bottom for so long, we’ve been forced to move from saving to speculating to earn any sort of return. Dominic Frisby asks w…
24 Feb 2021
Why you should still put money into a cash Isa
Cash ISAs

Why you should still put money into a cash Isa

Interest rates may be lousy, but tax-free saving into a cash Isa is still a good idea.
23 Feb 2021
Are we heading for another bond market tantrum?
Government bonds

Are we heading for another bond market tantrum?

The last time the US central bank tried tightening the purse strings, the bond markets threw a tantrum. With yields now rising, could we be about to s…
25 Feb 2021