It’s been just over week since we last wrote a market update about COVID-19 aka Coronavirus.
They do say when it rains it pours and the bad news has certainly started to pour in. Over the weekend it was the oil price plunge that now has given markets more to worry about. The oil price had fallen by almost 30% in trade on Monday as Russia’s decision not to follow the OPEC recommendation of cutting output to stabilise oil prices was quickly followed by Saudi Arabia’s plans to increase its output as a way of teaching Russia a lesson via a price war.
All of this at a time when the world is still trying to digest the global impact of the Coronavirus.
If there ever was a need for calm it is now. Investor panic has risen to extreme levels and yesterday saw the ASX drop some 7% in trade on Monday.
European markets followed suit with heavy losses overnight; UK FTSE down 7.69%, Germany DAX down 7.94%, France CAC down 8.39% and the US finished off the rout with the DJIA in the US dropping by 7.79 %. It was the first time since the GFC that the US market circuit breaker was triggered where there was a mandatory trading halt that lasted 15 minutes once the market had dropped by 7%.
This volatility is likely to persist for some time yet and the market will continue to swing in both directions for the time being. Markets that move in a day by percentage points that we more often expect over the course of twelve months deliver an environment that will really test our resolve.
What to do as an investor? Sometimes the toughest decision to make is not to follow the herd mentality we are now seeing with investors heading for the exit. Staying the course with your investment plan is never more difficult than in times of extreme volatility that we are now experiencing. Have we reached the bottom? it is impossible to say, and we wish we had a definitive answer for you, however we don’t.
What we do know that is staying the course has proven to be the best option and the one least likely to have you second guessing if markets have reached the bottom and deciding if it is safe to re-enter. The chances of timing that are near impossible.
Watching wealth being eroded in volatile markets is very difficult to digest, however giving into the emotion and making the wrong decisions can compound the problem. In the same way we have seen the herd mentality buying up all the supplies of tissue, paper towels, toilet paper and hand sanitiser we watch investment markets fuelled by fear and panic cleaning out the investment market shelves. Behaviour we would argue is completely unnecessary on both fronts.
Never has there been a more important time to understand that this is why we have diversified portfolios and that we allow enough liquidity for short term requirements allowing our focus to be on the medium and long term horizons.
We will continue to monitor the situation closely and provide further updates as required.