What's The Current Market Situation?
The coronavirus outbreak has been very much in the news and, apart from its impact on public health and the economy, is also affecting investments.
"British newspaper The Guardian reported that financial markets remain confident the crisis will soon blow over, as share prices have been rebounding because investors think the coronavirus can be contained" (TODAYonline, 2020).
Financial services firm ING expects that potential spreading of the virus across the globe could last until March or April and mark a new downside risk to the global economy in the first half of 2020 (TODAYonline, 2020).
What Should You Do?
Experts said that there's no need to panic in such situations as markets regularly go through cycles like these. In fact, you should use the opportunity to invest for the long term. Investors can also benefit by taking advantage of shifts in the market.
Position Your Portfolio Protectively
While there is uncertainty about the impact on investments and a panicked rush to buy less risky assets is not appropriate, investors would be well-advised to examine their portfolio and ensure that it is sufficiently diversified.
“When you don’t know,” Mr Ray Dalio, founder of hedge-fund giant Bridgewater Associates told MarketWatch, “the best investment strategy is to be smartly diversified across geographic locations, asset classes, and currencies" (TODAYonline, 2020).
For stocks, it could be advantageous to avoid vulnerable companies in the tourism sector such as airlines and cruise lines or hotels and to buy companies such as e-commerce or food delivery firms that will benefit even if consumers stay at home.
Given the uncertainties, it could also be advisable to take a more defensive posture than usual over the next several months and increase the allocation to investments in bonds while reducing the allocation to stocks and potentially shifting the types of stocks in the portfolio.
Even though the timing of an upturn is uncertain, watching trends and taking advantage of dips to buy if markets rebound could also be beneficial.
However, it is best to stay away from direct stock investing if you don’t have the wherewithal to research each company and make a decision. You can invest through mutual funds instead where the fund manager will do all that on your behalf.
“These are instances which make you fearful in markets. Market volatility helps you build wealth over a period of time. One should understand that these are market cycles. We don’t see any significant long-term impact. Therefore, we are advising investors to continue disciplined investing through systematic investment plans (SIPs) and stick to their asset allocation. Those who have the money can use this opportunity to invest more," said Anil Rego, chief executive officer and founder, Right Horizons, a financial planning firm.
When it comes to equity investing, financial planner advise sticking to the long term. As an SIP investor, you should treat such short-term corrections as opportunities to accumulate more units at lower prices and benefit subsequently when the markets recover. So continue investing for your long-term goals and don’t let the temporary market correction faze you (Livemint, 2020).
TODAYonline. (2020). A black swan arrives: Investors keep watch as Covid-19 outbreak changes market sentiments. [online] Available at: https://www.todayonline.com/singapore/black-swan-arrives-investors-keep-watch-covid-19-coronavirus-outbreak-changes-market-sentiments [Accessed 4 Mar. 2020].
Livemint. (2020). Business News Today, Latest Stock Market, LIVE BSE/NSE Sensex & Nifty, Mutual Funds Analysis. [online] Available at: https://www.livemint.com/ [Accessed 4 Mar. 2020].