Investment strategy against the uncertainty surrounding coronavirus

2 min. reading
Coronavirus, Investment, Market news / 24 February, 2020

Alberto Villasán Investment and Markets Director

The uncertainty surrounding coronavirus increases

During the last days, we have witnessed an increase in the uncertainty surrounding coronavirus and its possible effects on the population and the world economy.

Some of the doubt results from the lack of reliable data coming from the Chinese government about the problem and how it is evolving, as the situation seems to be constantly changing as new information comes to light.

Which at the moment has only been felt in local markets

This rising uncertainty, palpable in the media and certain sectors and companies, has so far only surfaced in local economies and markets, without seemingly affecting the rest of the world and other financial markets.

It is true that world stock markets fell by around 3% when the news broke, although it is also a fact that the exchanges had seen strong increases since autumn 2019 and that corrections of this sort are a normal part of the natural evolution of financial markets.

Our experience is that the effects are limited

Our experience of this type of event is that its impact is usually limited, both on asset prices and economic activity in general. Similar cases, since 2004, have lasted on average 2.4 months and none of them caused a recession or change in the economic cycle.

These cases include such major pandemics as SARs in 2004, swine flu in 2009, Ebola in 2014 and Zika in 2016. All of them triggered falls in the equity markets of between 4-8%, and also, in every case, the markets fully recovered.

Our investment strategy remains the same

As a result of the outbreak, we have not recommended any change in investment strategy to our clients. We continue to back high-credit-quality US corporate bonds that have brought us such good results, giving maximum priority to the principle of diversification when building portfolios.

For those investors looking for higher returns in the short term, we recommend any of our active equity strategies which focus on tactical and short-term management given the low structural value of the asset.