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If you have seen the news in the past few weeks, you have likely been inundated with information about the deadly and rapidly spreading coronavirus. Perhaps you noticed the value of your portfolio drop the last week of January as the uncertainties associated with this new health threat triggered volatility in global stock markets.
Whether it is the World Health Organization declaring an international emergency, photos of people wearing water bottles on their heads due to a shortage of face masks, or the announcements from major airlines that they are ceasing to fly routes to impacted areas of China, there has been plenty to be concerned about. But let’s put it all into perspective.
While being rightfully criticized for downplaying the risk or even suppressing information about the new threat, China has taken prompt and coordinated measures to limit the human and economic impact of coronavirus. We can also draw some lessons from previous pandemic scares such as SARS (severe acute respiratory syndrome) back in 2003.
As is suspected with the new coronavirus, SARS started in animals and spread to humans and quickly became capable of human-to-human transmission. The first human infections coincided with the start of the Lunar New Year, just as was the case with coronavirus, when hundreds of millions travel. SARS knocked 2% off China’s GDP growth in the second quarter of 2003, with transportation, tourism, and hospitality hit especially hard. Those sectors and retail will likely be among the hardest hit again.
What’s different this time?
While the situation is likely to get worse before it gets better, the SARS outbreak ran its course in about a 6 month period. Many anticipate similar acute but short-lived harm to China’s growth as seen during the SARS outbreak with the main effect on China’s economic growth likely being one of sentiment. The good news is that the Chinese government has taken serious actions quickly, such as quarantining whole cities and building infrastructure to treat those afflicted in a matter of days. While the coronavirus certainly threatens growth in the near term, there’s the potential for a rapid rebound in the second half of the year as the uncertainty wains and the Chinese government likely adds stimulus to their economy. The spillover to the rest of the world could be limited given a prompt and better-coordinated international public health response versus what we saw back in 2003.
What it means for you
Just as you consider rising stock markets in the context of your goals, do the same when markets are ailing. Know why you invest, maintain a diversified mix of assets to match those goals, and look beyond a troubled short term. If you haven’t reviewed how the likelihood of achieving your goals has been impacted by recent market volatility, perhaps you should get in touch.