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Global epidemic shows share market volatility

3 February, 2020
Categories: Investments

The coronavirus outbreak has been declared an international public health emergency. The epidemic continues to be a disruption to human well-being in parts of the globe. And a shake-up for those who rely on certain companies for their retirement and financial security.

As of today, the coronavirus, which causes pneumonia in its victims, has been recorded in more than 17,000 cases around the globe and appeared in 24 countries. The US set its health advisory to Red, which represents the highest safety risk. And the concerns continue to rise to the top of international press headlines.

Worry is also extending to the global financial system and its stakeholders. The coronavirus is unlikely to attack the global economy, but global markets aren’t completely immune to some short- to medium-term impacts.

The first to feel the symptoms has been the stock market, and to those relying on it for their income and financial security.

How does an epidemic shake up the stock market?

According to Fortune last week, airliners have lost as much as 11 per cent passenger revenue from the flight cancellations to and from China and Hong Kong. Starbucks has closed more than half its stores in China (over 2,000 of them) because of the outbreak. And McDonald’s has temporarily closed all its locations (several hundred) in the Wuhan province.

Companies are hurting as a result of the epidemic. And this fiscal pain has been felt by their investors.

stock market impact from coronavirus

Australian shares hit their biggest loss of 2020 with concerns of a global outbreak of the coronavirus. The S&P/AS 200 Index dropped 96 points (1.4 per cent) to 6994.5, the biggest one-day fall so far this year. The Australian 10-year bond yield dropped below 1 per cent for the first time since October.

Okay, astute investors will know that the two days after the above graph was published, share prices stabilised and even rose amidst the virus outbreak.

So, why are we claiming a shake-up to equity markets?

Well, given the danger of the coronavirus spreading further, the stock market could be even more exposed to its kryptonite: Uncertainty.

What stocks are exposed to epidemic uncertainty?

Travel, hospitality and luxury goods are standout examples. Also at risk is any business relying on revenues from China.

Many industries remain immune to the impacts of the epidemic. Investors in Australian banks and mining groups are not yet sweating. But a decline in China’s economic health could concern demand for commodities from Australia’s largest trading partner.

What should this teach investors?

Elections, trade wars and now global epidemics. The world’s major events will do just about anything to shake up the stock market. This is the sort of volatility bearish investors do not want.

Like the virus itself, it’s difficult to know how long the contagion will last and how dangerous it will be for equity investors.

Those investors should be wary of their investment. And as always, diversify their portfolio.

How can you protect your investment against an epidemic?

Diversification is the vaccine for a vulnerable share market.

With company revenues dropping over 10 per cent, and share markets experiencing sudden falls because of an international public health emergency, the smart investor might have funds placed in investments with far less volatility.

We’ll even admit that almost every member of the Properties & Pathways team is a share investor. But as a group, we are commercial property investors. This is where our comfort lays amidst such crises. Commercial property provides stable returns and long-term income security, thanks to ironclad lease agreements.

Whether it’s in commercial real estate, residential property, government bonds or blue-chip shares, investors should ensure a good spread of risk in case a further spread of health concerns impacts their shares investment.

For more information on how a commercial property investment can produce stable returns for your investment portfolio, get in touch with us today.

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