{"id":160,"date":"2020-04-08T11:56:16","date_gmt":"2020-04-08T09:56:16","guid":{"rendered":"https:\/\/entretramites.com\/en\/?p=160"},"modified":"2023-03-22T10:23:45","modified_gmt":"2023-03-22T09:23:45","slug":"impact-of-covid-19-on-investments","status":"publish","type":"post","link":"https:\/\/entretramites.com\/en\/fiscal-tax\/impact-of-covid-19-on-investments","title":{"rendered":"What is the impact of Coronavirus on investments?"},"content":{"rendered":"\n

The coronavirus has caused the closure of airports and some businesses<\/strong>, and has led China to build new hospitals in a few days. In China, the outbreak could spell a period of slower growth and weakening stock markets<\/strong> as investors seek to hedge. But, there is also a great impact of coronavirus on investments, \u00bfHow is this? Keep reading.<\/p>\n\n\n\n

What are the consequences for the portfolios we manage?<\/strong><\/h2>\n\n\n\n

Morningstar Investment Management teams are closely monitoring the situation<\/strong>. They continuously monitor more than 250 markets from every angle<\/strong>, from fundamental risks to counter-investment<\/strong> opportunities.<\/p>\n\n\n\n

An examination of nine major epidemics since 1998 reveals little evidence<\/strong> linking these global phenomena to the rationale for long-term investment<\/a>.<\/strong><\/p>\n\n\n\n

The Chinese economy could slow down, even significantly, but this is no reason to invest or divest<\/strong>. Long-term investing often works best if short-term<\/strong> economic trends are ignored, so we urge investors to focus on what really matters.<\/p>\n\n\n\n

Through the portfolios Morningstar manage<\/strong>, we have relatively modest exposure<\/strong> to Chinese assets (both directly and indirectly), but we remain convinced that these positions will produce positive returns for investors in the long term.<\/strong><\/p>\n\n\n\n

Epidemics and investments<\/strong><\/h2>\n\n\n\n

To understand the possible consequences of an epidemic<\/strong>, we need to use forecasts<\/strong>, either formally or informally. If done well, it is a complex task<\/strong>, beyond the scope of this note. However, it is important to recognize that we are trying to anticipate the future<\/strong>, which is a risky intellectual exercise. No one can predict the future, but there is a wealth of research suggesting ways <\/strong>to improve predictions.<\/p>\n\n\n\n

One way to achieve more accurate forecasts is to use base rates<\/strong>. How often do we see a disease turn into an epidemic? What impact do epidemics have on the economy <\/strong>or markets? To answer this last question, we refer to Figure 1, which gives an idea of \u200b\u200bbase rates<\/strong> – in this case, the evolution of market performance after the main epidemics in recent history.<\/p>\n\n\n\n

Investors tend to react to epidemics<\/strong>, but the long-term trend is positive.<\/p>\n\n\n\n

Impact of Coronavirus on investments<\/strong><\/h2>\n\n\n\n
\"rentabilidad\"<\/figure>\n\n\n\n
\"rentabilidad\"<\/figure>\n\n\n\n

As the illustration above shows<\/strong>, market participants tend to respond to these unforeseen outbreaks<\/strong>, but markets typically take no more than six months to recover<\/strong>. This suggests that while sentiment initially causes losses<\/strong>, the economic impact over time is less than investors might have initially feared<\/strong>.<\/p>\n\n\n\n

Another way to improve foresight is to stay humble<\/strong>, especially since some things are and will remain unknown to us. Epidemiologists can produce baseline rates in terms of transmission and mortality<\/strong>, for example, but no one can predict how unknown factors may affect the transmission<\/strong> of a particular disease. Added to this is the fear that can take over the markets<\/strong>.<\/p>\n\n\n\n

\u00bfHow to make a reasonable assessment of the possible impact of the coronavirus?<\/strong><\/h2>\n\n\n\n

In this context, how can a reasonable assessment<\/strong> of the possible impact of the coronavirus be made? As long-term investors at Morningstar, focused on fundamentals and valuations<\/strong>, our concern is the potential impact of coronavirus<\/strong> on investments and corporate cash flows.<\/p>\n\n\n\n

One question is whether the collective impact<\/strong> (lower flight rates, reduced trade, lost productivity, etc.) will be felt by a few companies<\/strong>, a few industries, or entire markets. Therefore, this is the question we must ask ourselves.<\/p>\n\n\n\n

At this stage, we assume that the current outbreak will follow a similar trajectory to other recent epidemics<\/strong>, leading Morningstar to believe that investors have no reason to be alarmed<\/strong>. It should be noted that there is no ‘safe’ approach to investing: therefore moving from equities<\/strong> to cash carries its own risks, namely the crystallization of losses due to deteriorating sentiment and, almost certainly, the loss of a rebound if the spread of the virus <\/strong>is to be quickly contained.<\/p>\n\n\n\n

Therefore, we intend to base ourselves<\/strong> on what we consider to be the most likely scenario, while taking into account other possible outcomes<\/strong>.<\/p>\n\n\n\n

Some recommendations<\/strong><\/h2>\n\n\n\n

Ultimately, Morningstar are monitoring the situation closely<\/strong> but not taking any particular action. Their main ambition is help investors achieve their goals<\/strong>, which requires a measured and repeatable investment process.<\/strong><\/p>\n\n\n\n

Across their portfolios, Morningstar may hold exposure to Chinese equities<\/strong>, emerging market equities, emerging market debt and companies with sales in China<\/strong> to varying degrees, depending on the mandate governing the portfolio. However, we expect positive results in the long term<\/strong>, and only a clear impact on the fundamentals <\/strong>would make us change our perspective.<\/p>\n\n\n\n

It should be noted that if the situation were to change, we would have to change our minds.<\/strong> If we saw a clear and significant impact on investment fundamentals, we would study the situation closely<\/strong>, do a rigorous analysis of the scenarios, and try to integrate the new information into our portfolios.<\/strong> For now, we remain vigilant.<\/p>\n\n\n\n

Final note on the impact of Coronavirus on investments<\/strong><\/h2>\n\n\n\n

With lives at stake, it would be insensitive to speak of “noise” about the coronavirus<\/strong>. However, from an investor’s perspective, Morningstar believe this is not the time to act.<\/strong> Furthermore, we remain confident in our portfolio holdings as they are based on sound analysis<\/strong> and a well thought out investment approach. We’ll avoid panicking and we hope you won’t panic either<\/strong>.<\/p>\n\n\n\n

Source: <\/strong>Morningstar<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Epidemics that threaten public health can quickly scare off investors and ultimately affect the economy and trade. We will explain the impact of Coronavirus on investments.<\/p>\n","protected":false},"author":3,"featured_media":21219,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[8],"tags":[],"class_list":["post-160","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-fiscal-tax"],"acf":[],"_links":{"self":[{"href":"https:\/\/entretramites.com\/en\/wp-json\/wp\/v2\/posts\/160","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/entretramites.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/entretramites.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/entretramites.com\/en\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/entretramites.com\/en\/wp-json\/wp\/v2\/comments?post=160"}],"version-history":[{"count":5,"href":"https:\/\/entretramites.com\/en\/wp-json\/wp\/v2\/posts\/160\/revisions"}],"predecessor-version":[{"id":21293,"href":"https:\/\/entretramites.com\/en\/wp-json\/wp\/v2\/posts\/160\/revisions\/21293"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/entretramites.com\/en\/wp-json\/wp\/v2\/media\/21219"}],"wp:attachment":[{"href":"https:\/\/entretramites.com\/en\/wp-json\/wp\/v2\/media?parent=160"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/entretramites.com\/en\/wp-json\/wp\/v2\/categories?post=160"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/entretramites.com\/en\/wp-json\/wp\/v2\/tags?post=160"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}