Corona virus: investors urged to practice caution

As the first documented case of the Corona virus is confirmed in Germany and the death toll rises above 100, investors are urging for “caution” to keep markets stable.

As the first documented case of the Corona virus is confirmed in Germany and the death toll rises above 100, investors are urging for “caution” to keep markets stable.

“At the present time, in our view the key for investors is to focus on the economic costs of controlling the outbreak, rather than fearing mass panic,” said Alastair George, Edison Group’s chief investment strategist. “A downgrade to Chinese GDP for Q120 appears likely. Until cases have peaked, we believe travel and entertainment sectors are at risk of underperformance,” he added.

While the number of confirmed cases is expected to rise sharply around the world, the risks might actually turn out to decrease or stabilise. “China’s current reported case mortality rate of 2.9 per cent may significantly overstate the actual danger from infection if there is a much larger number of undiagnosed and minor cases,” commented George.

Edison believed a cautious portfolio positioning was appropriate prior to the outbreak of the virus, a view largely based on “the fact that forward multiples of US and continental European stocks were close to the top of their ranges for this cycle, suggesting an economic upturn was fully discounted and there was little margin of safety for unanticipated events,” according to George.

He notes that investors should apply a discount to sectors where the economic impact of attempts to control the coronavirus outbreak are likely to be the most affected.

As stock markets initially fell dramatically around the world, Nigel Green, CEO of the deVere Group called the Coronavirus the “number one threat to financial markets currently.”


Markets have since stabilised somewhat; London stocks were mixed on Tuesday. Meanwhile European markets also stabilised during the beginning of this week since reeling from the news that the outbreak, which originated in the city of Wuhan in China, has now lead to more than 100 deaths.

Green continues: “Most investors should monitor the situation with their financial adviser and sit tight at present. But if it is still escalating next week, with much higher casualty rates, a more defensive approach might be necessary.”