The disruption to the markets and our lives has continued due to the spreading global coronavirus outbreak.
The Australian equity market and the Australian dollar are not holding up well as the impacts of the virus are felt globally. Oil prices have also fallen dramatically as Saudi Arabia and Russia were unable to come up with a deal to support oil prices. Oil prices had already been falling due to expectations of slower global growth caused by the coronavirus.
I have no idea when the threat will end, but it now appears far from a short-term event, with the markets yet to be convinced that the stimulus and actions from governments will be enough to offset the spread of the virus and the economic issues it is causing.
Despite growing fear, it is unlikely that the virus will bring the world to a standstill as it seems to have mild effects on most infected people while having the most impact on the elderly. The 1918 Spanish flu, which was far more deadly, also failed to bring the world to a standstill.
Even so, given the fear around coronavirus, or COVID-19 as it is also known, people and markets are currently not acting rationally. Which is not surprising based on the number of unknowns. Indeed, the recent rush on toilet paper at supermarkets across Australia is a good illustration of how irrational people can become when mass fear sets in.
When it comes to the markets, it should be noted that given the strong global market rally over the last few years without a correction, especially in the US, a correction was going to occur at some point. The coronavirus and the short-term effects on the global economy has been the catalyst for this correction.
Given the current irrationality of the markets, it’s my view that long-term investors are best served sticking to their investment strategy. Specifically, I believe that the Raiz philosophy of investing small amounts regularly is the best way to go to assist in managing the current uncertainties associated with the markets.
Long term coronavirus impact still unclear
On the outlook, there is currently no vaccine for the virus, and it is unlikely that one will be available for at least 12 months. However, looking further ahead, the virus is likely to have significant long-term effects on our behaviour and communities.
The Spanish flu, for instance, had a large impact on social justice in the Western world and eventually led to socialised medicine, paid sick leave and many other benefits for communities now seen as unquestionable rights in many countries across the globe.
Going forward, while the long-term impacts of the coronavirus are yet to be seen, it’s likely to affect the way we save, invest, travel and our approach to social justice for many years to come.
I wish I had more insight into the short-term effects on markets. I understand that it’s easier to talk the talk about sticking to a philosophy of regular investing, but harder to walk to walk when it is your own money and markets are falling. I do however know that in the long-term the markets will recover, but I just can’t say when and how quickly.
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