Advertisement
Coronavirus pandemic
OpinionComment
Hannah Anderson
Hannah Anderson

The coronavirus has created an unprecedented market environment. Do the usual rules still apply?

  • To cushion the impact of social distancing, fiscal stimulus will have to go way beyond its current level of slightly over 1 per cent of global GDP
  • The current volatility is a reminder that investment strategies matter when it comes to how portfolios behave during a rapid market downturn

Reading Time:3 minutes
Why you can trust SCMP
0
People are reflected in a window of the Australian Securities Exchange in Sydney on March 17. Asian markets have fluctuated after Wall Street suffered its worst day in more than three decades with coronavirus panic sweeping the globe. Photo: AFP
Hannah Anderson

Fears related to the global spread of Covid-19 continue to grip markets. Several economies are at a standstill, volatility reigns and a general sense of unease permeates almost every corner of our lives. Such are the consequences of a public health crisis which precipitates an economic downturn.

These two together plus the additional issue of problems in the world’s financial plumbing and doubts about the effectiveness of several governments at containing the spread of the disease have pushed uncertainty to all-time highs.

Uncertain investors are prone to make mistakes. We can all repeat the “be disciplined and stay invested” mantra to ourselves as many times as we want, but that doesn’t change the fact that we are living through a market environment without precedent. It is reasonable to ask if the rules still apply.

To help sort through the constant influx of news, I address five questions: How has this disease progressed? What will be the economic impact of its progress and measures to contain it? How effective will monetary and fiscal policy changes be at mitigating these effects? How will markets respond? And, what would a rational and disciplined investment strategy look like?

First, with the caveat that very few of us are public health officials, the virus does seem to follow a pattern in each country. The number of cases increases exponentially until each country embraces widespread testing and social distancing. While some countries have implemented these measures more rapidly than others, it does suggest that the Covid-19 epidemic will be brought under control.

Advertisement