The fall in global equity and oil prices seen on Monday – and a simultaneous surge in the gold price – shows how investors have been complacent over coronavirus, it is claimed.
The disease – which has spread outside of China – is impacting global markets in a way that was “underestimated”, according to Nigel Green, chief executive of deVere Group.
“In general terms, stocks have hardly been deterred by the coronavirus outbreak. This complacency is concerning,” he said.
“Investors need to ensure that their portfolios are coronavirus-proofed as cases jump and a market correction looks more likely.”
Over the weekend, more cases of coronavirus were reported in Italy, Iran and South Korea. First cases were also confirmed in Kuwait, Bahrain, and Afghanistan.
“Against this backdrop and with the ongoing uncertainty over the direction of stocks and other risk assets, multi-asset portfolios might be favoured by global investors, given that they offer diversification of risk as well as of return, Green said.
“Global markets are at high valuations and the impact of the coronavirus on profits appears largely underestimated,” he added.
However, Green said it was likely that markets will rebound quickly following Monday’s slides.
“This is because many investors remain complacent about the far-reaching impact of coronavirus, which is continuing to spread – and a faster pace. This will inevitably hit financial markets and investors’ complacency leaves many wide open to nasty surprises.”
Major global companies, he said, especially those with heavy exposure to the Chinese economy, were lowering profit guidance due to the outbreak. This will have a knock-on effect across international supply chains and throughout economies.
Rupert Thompson, chief investment officer at UK wealth manager Kingswood, said: “The disruption caused by the virus will hit economic activity significantly in the first quarter, with global growth very likely to grind to a halt. But we continue to believe that the outbreak is likely to follow the path of previous such health scares with growth rebounding in the second and third quarters.
“Our confidence on this front is increased as monetary policy will be relaxed, if necessary, to limit the damage. Indeed, the Chinese authorities have been doing exactly that.”
Until Friday, said Thompson, global markets were hovering around their January highs. But markets fell back about 1% or so and the UK and European markets are now down more than 3% this morning (Monday, 24th).
“The recent spread of the virus outside of China, with Korea and Italy both now imposing quite radical containment measures, has spooked equity markets. It has also fuelled further gains in safe havens such as gold and US Treasuries,” Thompson said.
While cases outside China are “rising fast, which is undoubtedly worrisome, one should not lose sight of the fact that they are still below 2500. This is dwarfed by the 77,000 cases in China, where the latest news has actually been very reassuring”.
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