Coronavirus pummels global markets

My column two weeks ago discussed the potential economic impact of the coronavirus outbreak and the increased risk to global markets.

As if on cue (maybe global traders all read my weekly column?) the past week saw a significant drop in equity markets around the world. Increased warnings from the World Health Organization were the main trigger for this huge five day selloff.

Investors, looking for a possible safe haven, and worried about potentially slower global growth, flooded into US treasuries, with 10-year yields falling to a near record low of 1.35 per cent. This was the worst week for the stock markets since the 2008 global financial crisis.

At the time of writing, the virus has claimed almost 3,000 lives, nearly all in mainland China. Their attempts to control the spread have resulted in a sharp slowdown in manufacturing and consumer spending. Other countries may face similar disruptions as well which could lead to a worldwide economic slowdown.

In my previous column, I shared some data on how global markets reacted to other epidemics over the past 20 years. Each time, the market had a sharp selloff similar to what we experienced this past week and then quickly regained its previous high after the outbreak peaked.

I wanted to provide a different chart that will show a more visual representation of those various epidemics:

At this point, it is too early to tell how big of an economic impact the coronavirus will have and when the outbreak will peak but past events tell us that it too will pass and there is no reason to make changes to your investment plans.

Major news events like this will often add volatility to the markets and cause emotions to control investment decisions. Throughout history, equity markets have experienced significant volatility and continue to be resilient.

Many of the strongest returns in the markets occur in the periods immediately following a sharp decline. Staying the course is of the utmost importance during periods of volatility as it enables investors to fully recover from these periods and achieve their long-term investment goals.