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Coronavirus effect on investments

In our newsletter two weeks ago, we warned investors to beware of further downside risk as Coronavirus (Covid-19) fears continued. These fears are escalating as the reality of a pandemic unfolds. Fear is heightened by the unknown, which is a major negative of Covid-19. These unknowns (uncertainties) are likely to extend investment market volatility. We need to be prepared for this, and not panic.

The true extent of the virus’s contagion is unknown, due to the lack of testing available. Globally, reported infections are 180 000 with 7000 reported fatalities. However, it is likely these numbers would be far greater if more testing had been done to date.

A positive development is that many governments around the world are being proactive in educating and restricting the movement of the public in order to reduce the spread of the virus. The risks of contracting the virus needs to be minimised as much as possible. This is the only viable strategy until a cure is found.

A cure will be found and the world as we knew it a few short weeks ago will re-establish in one to three years’ time. However, we do not know how long it will take to find a cure, with current estimates being anywhere between 6 months to 2 years.

To soften the effects of a global economic decline, many major governments are providing financial stimulus, by reducing interest rates and potentially cutting taxes and extending loan repayments. Although this assistance is a welcome help, it is unlikely that it will avert a global recession.

Investonline Investment Outlook and Advice

As the world “battens down the hatches” and waits for a cure, fear and uncertainty will persist, which will drive market volatility.

With the JSE All Share Index down 35% and world market down 30% over the last month, it is difficult to predict how much further the equity market will decline. The previous three crashes were all around -45%, and they all recovered, within a one-and-half and two-and-a-half-year period.

Currently, there is more downside risk, driven by panic, but with the world likely to be ‘back to normal’ again in a year or two, the investment market should follow suit and recover.

If one has not taken our advice to date and de-risked, the risk now, is selling your investments at a loss and not participating in the recovery.

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