COVID-19 will most certainly go down in the history books as one of those “out of the blue” events that disrupted global capital markets. The question on our mind, however, is have authorities over-reacted to the health threat presented by this condition? So far, it appears that COVID-19 is more serious than the regular seasonal influenza but it is certainly not at the level of risk inherent in other communicable diseases such as SARS, MERS or Ebola. Governments have elected to err on the side of caution by using extraordinary measures to contain the spread of this virus. As a consequence, global economic growth will be materially impacted in Q1 and probably into Q2. Corporate profits will suffer.
We expect a policy response (perhaps coordinated) by central banks and governments that will reboot the global economy. These policy initiatives combined with the magnitude of the current sell-off should be sufficient to stabilize global markets and pave the way for a recovery in the second half of this year. To be sure, the market’s reaction in this past week has be uncomfortable for all, but now is not the time to react. Take confidence in the quality and diversity of your portfolio. This fear too shall pass.
Global balanced portfolios have cushioned some of the blow to the stock market sell-off. Benchmark portfolios have declined about 3-4% since January 1st, 2020 as compared to a 8-10% drop in global stocks. We will be rebalancing portfolios as the scope and timing of the market panic subsides.