The coronavirus infection has been spreading across the world since the inability to contain it within China. It has since affected several countries across South East Asia, and cases have been identified in 44 countries in total, including Egypt and Algeria. 81,000 cases have been identified, and about 3,000 deaths have occurred, most of them in China. However, more new cases are now springing up outside China, than inside it. Today, it’s first case was recorded in Nigeria.
The major fear of coronavirus is not the risk of mass deaths, as the virus itself has not proven to be very lethal. The fears are that lack of a cure or effective vaccine may lead to the virus developing resistant strains. However, the real big fear and the reasons markets have reacted so strongly to this outbreak is that it risks disrupting supply chains that a lot of companies around the world rely on.
Around the world, a global supply chain, just in time inventory and far flung logistics channels means that most companies rely on other countries and locations for the inputs they need for their business. And most of that supply chain is centred around China and SouthEast Asia, which is ground zero for this outbreak. Companies like Apple, Nike, Amazon, Disney, General Motors, Walmart, etc all rely on Chinese manufacturers and suppliers for a lot of their inventory, parts, logistics, orders and more. The coronavirus by forcing activity to shut down threatens to impact the profitability, performance and even viability of several companies.
This means that profits and sales will be lower, manufacturing will halt, a lot of critical industries may be impacted. For instance, a two-week disruption in a simple parts supply chain for a car manufacturer may impact other activities in their entire value chain leading to massive delays or misses in their targets, which could swing them from profits to loss. A 3-month delay or shut down in business could mean losses for the whole year. With the bull market having run up so high, recession fears have increased with the threat of this disruption.
How should investors respond? First is that if you’re holding high quality stocks in growing companies then the dust will eventually settle. Nothing lasts forever, especially not a viral outbreak. And if your companies are solid, then they’ll continue to do well long after. So don’t panic. Don’t sell off because your portfolio is down. Instead, continue to invest consistently. Treat your investments like a monthly bill and buy in these moments when stocks are cheap.
Second, diversify. Don’t fill your portfolio with only stocks. On Rise Vest, you can invest in stocks, real estate and fixed income giving you a strong, diversified portfolio that can withstand market corrections.
Finally, take the long view. If you are investing with a long term mindset and horizon, temporary fluctuations in the market will be easy to ignore!
Your health is right up there on the list of things with care about. To stay safe, please:
- Wash and sanitize your hands more frequently.
- Always sneeze or cough into a tissue.
- Wear a facemask if you have a cold.
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