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COVID-19: Financial Market Fallout Continues

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March 9th marked the 11th birthday of the equity bull market that began in the midst of the global financial crisis. Yet investors had very little to celebrate. The week was characterized by extreme volatility and panic selling last seen during the financial crisis in 08/09. The spread and economic impact of the Coronavirus has been far more severe than policymakers, economists and asset managers forecast.

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This past week will go down in the history books, that much is clear. Wall Street experienced the second largest loss since Black Monday in 1987. Many markets across the world experienced losses of over 30% from their peak in mid-February. The average bear market is a loss of 34% that has already been reached in Europe. A bear market is a loss from the peak of more than 20%. But what makes the current correction stand out is the speed with which it happened. Neither during the Great Depression of the 1930s nor in the financial crisis did the US stock markets fall so sharply in such a short time.

When times are tough and the push comes to shove, the lenders- and spenders – of last resort, i.e. the central banks and governments, come into play. This coming week, all eyes will be on the major world economies central banks, to see what supportive measures they will introduce.

The Covid-19 virus is not going to quickly go away. Most countries are only now coming to grips with containment measures. Travel bans, workplace restrictions, school closures and voluntary quarantine measures are just some of the measures being implemented. Time will tell what the affect will be on economies and financial markets. What is clear is that growth forecasts for most major world economies are being revised downwards. This will have an impact on the valuation metrics applied to companies, and consequently will affect share price valuations.

In exceptional market situations, investors ask themselves what they should do now.

We recommend:

  • Avoid situations in which you are forced to sell.
  • Stick to your investment strategy and avoid panic sentiment driven selling.
  • Take advantage of buying opportunities opportunistically, but always monitor closely your own risk profile.

 

But most of all we encourage clients and potential clients to take the Covid-19 virus seriously and take all appropriate measures from a hygiene and cleanliness perspective. Nothing is more important than our health and those of our colleagues and loved one’s. Activ8 will be implementing a “work-from-home” policy until after the Easter weekend. However, we shall still be available to clients and encourage engagement and interaction at this time.

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