Market Review - February 2020

March 16, 2020

By Jan Faure

Coronavirus fears hammer global markets.

Global markets fell sharply and quickly in the final trading week of February as fear of the COVID-19 virus becoming a pandemic intensified. The coronavirus, which originated in Wuhan, China, late last year, is impacting global trade and travel and battering investor confidence. Markets are unsure how long the outbreak will last and the degree of damage it will inflict on the global economy.

Currently, new infections continue to rise with many countries reporting their first cases. In Switzerland, all events over 1,000 people have been cancelled. The Japanese island of Hokkaido declared a state of emergency and urged residents to stay home. Approximately two-thirds of factories in China are operating well below capacity, impacting supply chains around the world.

Developed market equities declined by 8.6% in February while the S&P 500 Index, a proxy for US equity markets, saw a February peak-to-trough drop of 13%. All in all, global equity markets lost $7 trillion in value from the 19th of February, when the S&P 500 reached its most recent record high. Many major companies including Apple, Microsoft and Mastercard have said their earnings will take a knock. Companies in the travel and tourism sector have been particularly hard hit while the price of Brent crude oil is down over 20% since the outbreak began.

The question being asked is when markets will hit the bottom, or when the right time is to buy? Markets hate uncertainty so until there is a clear sign of a levelling off in the number of new cases, markets will continue to be vulnerable to further downside. Because this is a non-financial event, it is more challenging for analysts to update their financial models. They have to wait on reports from health officials which adds to the uncertainty. What’s further adding to the noise is the tendency for financial media to become overwhelmingly and excitedly doomsday-ish.

Both the Bank of Japan and the US Fed have pledged to help protect markets from the impact of the coronavirus. Central bank intervention is something markets have become quite accustomed to and even expect. Stimulus measures could include both tax and interest rate cuts. These measures cannot however eradicate the need for quarantine and travel barriers to stop the spread of infection. So, despite central bank stimulus having been an effective economic backstop for the last 15 years, it may not be effective at all until the spread of the virus is contained.

It is important to remember that corrections are a fairly common feature of equity markets. We see corrections most years. History shows us that long-term investors are best served remaining calm and invested. Markets will recover, it is simply a matter of how quickly. Investors need to accept that volatility is part and parcel of investing and that long-term commitment to the cause always prevails. It is worth reminding ourselves of the four key ingredients to investment success: accurate asset allocation, diversification, low investment fees and time. Getting these four elements right and sticking to them almost always achieves or exceeds one’s investment goals.

GLOBAL INDICATORS: Local reporting currencies

Source: Bloomberg,, S&P Dow Jones Indices
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