Market Volatility and Covid-19


Most likely you would have heard in the news that the world stock markets have retraced some of their growth, that’s the same, non-emotional way as the news headlines saying ‘trillions of dollars have been wiped off the value of the world’s companies’.

What they did not tell you is that in the preceding months, trillions of dollars were added, unfortunately, the media tends to spread fear, but you don’t need to accept it.

The MSCI World Index had fallen from a high on 20th February to Friday’s close down 9.94%, the index is now back to mid-October 2019’s prices.  This is a significant retracement, but not unique.

I use the MSCI World Index, which reflects a market cap-weighted global portfolio, similar to what you invest in at Lexington, and not the FTSE (UK index) or S&P (US index) because it’s more relevant.

Beyond the headlines

Is this the bottom?  Who knows however you should expect these falls in your portfolio, that’s why I always speak about the historical maximum drawdown of a portfolio.

Fundamentally the economy is strong, the market volatility is based on the uncertainty surrounding what impact the Convid-19 virus will have economically.

We don’t know how severe it will be, some reports are worrying, others are less so, even those in charge don’t really know.  I read in the Spectator that there are strong signs that the virus has peaked.

The virus is causing a supply issue not a demand issue.  Most central bank financial stimulus work on consumer spending by using quantitative easing and reducing interest rates.  If there is no product to sell, because of the lack of goods being manufactured, this will have little immediate benefit and earnings/share prices could be affected until supply recovers.

If you are able, use this as a buying opportunity to invest more, or if you are fully invested, look through the headlines to the next 10 or 20 years, there will always be headlines to worry you.  If you are drawing an income from your portfolios, we have already planned for scenarios like this and you will hold cash and low-risk bonds that will cover your income needs.

The recovery may not be immediate because it will take a little time for the factories in the Far East to reopen and get back up to speed.  Weak companies with poor cash flow may not be able to survive a shortage of business so expect some corporate failures but overall fundamentally most companies and the economy are strong.

Here is a recent interview on CNBC with Warren Buffett one of the world’s most successful investors, it’s 5 minutes, but it’s really the first 30 seconds you should watch.

Warren Buffett CNBC Interview.

After 25 years as a Financial Planner, I feel more experienced and prepared than ever in my career, you are in safe hands and if you are concerned, please get in touch.