Financial markets remain volatile as the number of individuals with the coronavirus [COVID-19] continues to increase. Between February 12 and March 3, the MSCI ACWI Index fell by 10% in UD$ terms, while the US 10-year Treasury yield dropped by over 60bps to 1%, its lowest level ever.
Gold gained 5% and the oil price fell by 8% [Markets data supplied by Thomson Reuters Datastream]. The last week of February was the worst week for global stock markets since the Global Financial Crisis. Because market data changes by the hour, further volatility in all markets can be expected.
In recent weeks, the daily rate of new COVID-19 cases in China has slowed significantly. The isolation and quarantining policies of the Chinese appears to be working, but not without economic cost.
Rapid outbreaks in Italy, Iran and South Korea would be a serious cause of concern if they occurred in the USA, because of the size of its economy.
Economic growth in China in the first quarter of 2020 is likely to be negative, however with more people returning to work as new infection cases fall, the Chinese economy is likely to rebound strongly in the next two quarters assuming business activity is near normal.
China has loosened monetary and fiscal policy, focussing on measures to support business directly impacted including delaying payments of tax, deferring bond payments and lowering borrowing costs.
Other Asian economies are also weak or negative due to collapse of Chinese tourism and the imposition of quarantine measures.
Disruption to supply chains will also slow economic activity in some countries.
A sharp recovery is likely at some point but the timing of it will be determined by when the virus is brought under control.
In Europe, UK, Americas and Africa economic activity is already being curtailed and the range of possible outcomes is wide.
The current base case is analysts expect a sharp economic slowdown in the first half of the year in most countries followed by a steep recovery, however, some actively lost in the services sector is unlikely to be recovered.
Investors should maintain discipline in their asset allocation approach, but speak to their advisers about a plan to respond to future market volatility. Financial Brokers are best placed to help you understand what is happening.