Coronavirus and the market

The economic impact of the coronavirus outbreak is not yet known, but there is no doubt that is has added some new risk to global markets. 

This type of outbreak is certainly not new though. Since 2003, we have faced other epidemics, such as SARS, the swine flu, Ebola and the Zika virus. While each epidemic is unique, the impact on global markets follows a similar pattern: 

Concern builds to a point where a sharp drop in confidence and/or activity hits the economic data release. 

Next, this slowdown is discounted in the markets. 

Shortly thereafter, investors decide to look through the concerns and start to re-establish positions in riskier equity positions again.

For comparison, let’s look at the above-mentioned events in relation to the start of global interest and the “peak of interest” as defined by the number of story counts on Bloomberg news:

At this point, it is too early to tell how big of an economic impact the coronavirus will have and when the interest will peak, but past events tell us that it too will pass and there is no point in making changes to your investment plans. 

Major news events like this will often add volatility to the markets and cause emotions to control investment decisions. Health officials have learned a lot about containing virus outbreaks from past epidemics and the response to date has been swift and aggressive.   

The point of all of this is not to downplay the seriousness of this latest epidemic and certainly not to ignore the many people who have lost loved ones to this horrible outbreak, but it’s instead meant to remind you not to change your investment thesis every time bad news is announced. 

The coronavirus epidemic could become a much larger economic event but we are certainly not there yet.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.