Chinese economic statistics made for bleak reading and included the following:
- A 1.6% fall in the Yuan.
- A 7.7% fall in the Shanghai Composite (SHCOMP).
- An 8.5% fall in the Shenzhen Component Index (SCI).*
Losses in the SHCOMP and SCI resulted in a combined loss of $445 billion and were perhaps expected by the People’s Bank of China which earlier announced a 1.2 trillion Yuan ($173 billion) injection into Chinese bond markets in what amounted to a pre-emptive attempt to stabilise the country’s economic situation.*
The bank also said it would look to stimulate investment and recovery by providing low interest loans to commercial investors looking to assist the fight against the virus. This move was foreshadowed by the National Development and Reform Commission, which announced that it would spare no expense in ensuring a robust recovery from the impact of the outbreak.
However, as the virus has spread from mainland China to other parts of Asia, including Hong Kong and Japan, it is expected that there will be a period of considerable volatility right across the region.
Diversify and expect the unexpected
Jim Cramer, the host of CNBC’s Mad Money recently, advised his viewers to be prepared for the unexpected. He also cautioned against relying too much on the advice of market analysts.
“There are lots of very smart people in this business, but very few of them are infectious disease experts,” he said.**
However, one thing is certain: any person who is overly invested in China or indeed Asia, is more likely to suffer losses, at least in the short-term. As such, the importance of a well-diversified portfolio is never clearer than during times of illness epidemics.
As it stands, US markets remain buoyant. At the same time that Chinese stocks took a plunge, the Dow (INDU), S&P 500 (SPX) and Nasdaq Composite (COMP) futures all experienced rises of between 0.5% to 0.8%.* This is not to say that the US or indeed US markets are immune to the effects of coronavirus but simply that, at the moment, they appear a more robust option.
However, the virus will undoubtedly have significant global ramifications, even if its impact is limited to best-case scenarios. Oxford Economics’ relatively conservative forecast predicts that Chinese growth this year will fall to 5.6% (from 6.1% last year). This alone would likely slow global economic growth by 0.2% and result in a growth rate of 2.3% – the lowest since the global financial around ten years ago.***
Build a better financial future with Blacktower in the US
Blacktower (US) LLC works to help its clients ensure that their financial and retirement plans are aligned with both their goals and their unique cross-border situation. Our international financial advisers work from bases in NYC and Florida and also serve clients in Latin America, and Mexico.
For more information about how we can help you plan for the long-term in a way that allows you to weather the volatilities experienced during times of global economic, political or health crisis, contact us today.
* https://edition.cnn.com/2020/02/02/investing/china-markets-coronavirus/index.html
** https://www.cnbc.com/2020/01/31/the-coronavirus-remains-a-big-wild-card-for-investors-jim-cramer-says.html
*** https://economictimes.indiatimes.com/news/international/world-news/sars-stung-world-economy-coronavirus-is-a-bigger-menace/articleshow/73912365.cms
This communication is for informational purposes only and is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.
Investment advice and investment advisory services offered and provided through Blacktower Financial Management US, LLC. This communication is for informational purposes only based on our understanding of current legislation and practices which are subject to change and are not intended to constitute, and should not be construed as, investment advice, tax advice, tax recommendations, investment recommendations or investment research. You should seek advice from a professional before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.