The coronavirus outbreak creates some near-term risks to investors. However, previous episodes of viral outbreaks suggest markets may snap back fairly quickly, and the longer-term impact on global growth may be minimal. As such, the coronavirus outbreak does not fundamentally change our outlook for global markets at this time. Consequently, we emphasize sticking to the plan, by focusing on the long-term and maintaining a strategic, diversified portfolio.
The impact of previous viral outbreaks like SARS on economic activity appears to peak after roughly 1 to 3 months. Goldman Sachs published a study that benchmarked the current outbreak against 4 recent viral outbreaks. While each episode is different, recent history suggests a 2-part pattern: first a rapid acceleration of concern (over a couple of weeks); then a gradual fading out of this concern (over roughly 2 months). While there is no guarantee that the coronavirus will follow this pattern, recent history suggest we may be nearing the end of the phase of accelerating concern. As concerns dissipate, this may prompt a modest recovery in market prices.
That said, there are risks of more downside until the outbreak is contained. When investors become nervous and market behavior focuses on the short-term, this is where experience and an ability to see through short-term market movements can become advantageous.
We are comfortable that our portfolios can weather more volatility, and we are ready to act if we see opportunity. However, given the risks and return potential as we see them, we remain patient. We believe this discipline gives us an edge that has enabled us to meet our clients’ objectives over time.