Market reaction highlights the importance of a diversified portfolio says deVere Group CEO
The coronavirus is a major threat to financial markets currently but investors are being urged to stay calm despite risks.
While China is facing severe disruption and fear as the virus spreads with authorities and scientists battling its challenges, the government in Beijing says that securities firms should assess the risk “rationally and objectively” and focus on long-term investment values.
The Chinese stock market is dominated by retail firms and this sector should now be enjoying one of its busiest periods, the Lunar New Year. However, the coronavirus has meant lower footfall than normal.
Nigel Green, CEO of global investment advisory firm deVere Group says that investors shouldn’t panic about the current situation, especially if they have a resilient portfolio.
“The Coronavirus is the number one threat to financial markets currently as global investors are becoming jittery on the uncertainty. But whilst this health crisis will inevitably hit some sectors, such as travel and retail, most investors who have a properly diversified portfolio should avoid knee-jerk reactions. History teaches us that most issues of this kind have a short-term impact on stock markets,” he said.
The short-term impact includes a 2.7% drop for the Shanghai Composite Monday, the Hong Kong Hang Seng lost 1.1%, and Japan’s Nikkei dropped 2%.
Global stocks were also affected with Wall Street futures easing back on gains, oil lower amid demand fears, and safe havens such as gold gaining.
“Most investors should monitor the situation with their financial advisor and sit tight at present. But if it is still escalating next week, with much higher casualty rates, a more defensive approach might be necessary,” added Green. “However, the cost and effort of making such a switch means you do not do it lightly, and more evidence is needed that the virus does pose a medium to long term risk to China and the global economy.”
Wake up call
Mr Green says that the current crisis should be a wake up call to investors that they should have a diversified portfolio across asset classes, regions, sectors, even currencies.
“This is the best way to mitigate risks and the best way to be well-placed to take advantage of the opportunities when they occur. Stock markets tend to bottom with the peak in new cases during a public health issue of this kind, before rebounding,” he said. “This is a worrying and serious situation and investors must be vigilant. They should remain properly diversified and remain in the market.”
