China, the Coronavirus, and the Correlation to Your Investments
Updated: Oct 2, 2020
As you know, here at Novi Wealth Partners, we are not prone to believing the sky is falling, nor do we espouse knee-jerk reactions to news stories. That said, as we watch the Coronavirus situation play out, we do believe it is something to keep an eye on. Specifically, when the world’s second-largest economy starts curtailing mobility to, from, and within its borders, there are bound to be economic impacts. Add this to China’s importance as a trading partner, customer, and supplier to the world, and we can easily see that it’s not just “China’s problem.” We have two thoughts to share; one, stay informed, two don’t panic.
Here is a link to a great article I read this weekend from the NY Times regarding the virus: How Bad Will the Coronavirus Get? This article helps understand what to expect and provides some context to the annual flu and previous virus outbreaks. The general theme lends the thought that there is no reason to incite panic. This is not the first time that a country or the world has faced something of this magnitude. Every time we are faced with this challenge, health organizations around the world have worked together to find a solution to the problem. This should not be any different.
Don’t fall for the trap that selling your investments or changing your investment strategy in light of the Coronavirus is prudent. If panic controls your investment decisions, you have already started down a losing path. Control the desire to be active. Buying or selling based on this news is not going to lead to better outcomes, remember that we cannot predict what will happen. So, if we cannot predict outcomes, why would you act on this latest news?
The immediate impact to your investments may not be as great as perceived. Most of our equity portfolios have less than a 5% direct stake in Chinese stocks, in fact, our Core 60% equity portfolio has about 1% exposure to China investments. However, if this is just the beginning of the virus’ story, we need to be prepared for wider potential impact. We are not suggesting a withdrawal from Chinese investments, the stock market as a whole, or other risky assets, but investors should be aware that a global pandemic is the type of catalyst that can throw typical or traditional economic relationships off-kilter. However, other historical events like SARS have had little long-term impact.
It is normal for investment values to decline, sometimes dramatically and for long periods of time, and we should also put it into perspective that we are coming off a historically long bull run. Over that time, we have locked in profits by rebalancing portfolios out of the stocks that have generated strong returns, and our clients’ portfolios are (or should be) positioned according to their risk tolerance and required return for making their financial plan a success. To the extent you do not think you will respond well to a pullback, this might be a good backdrop for a conversation about whether you are positioned appropriately. We do everything we can to ensure your portfolio is aligned with your needs, circumstances, time horizon and risk tolerance. We want to maximize returns which would encourage more stock type investments. If you are getting anxious then it may be advantageous to review your allocation. We will stay on top of this story as it unfolds, but in the meantime please let us know how we can help.
Commentary by: Robert Dunn