LGT Vestra - Market Volatility Update

Tuesday 3 March, 2020

If there is one thing that markets do not like, it is uncertainty. We have experienced plenty in the last week and perhaps we will see more over the weeks to come, as the impact of coronavirus on global economic growth continues to have an effect. 

If we look at regional equity markets it has been (so far) the Asian markets that have seen the most significant falls with the Chinese stock market (the Shanghai Composite) falling 8% in one day on 3 February 2020 (BBC News). There does seem to be a domino effect in terms of market behaviour. Asian markets open lower (remember they are ahead due to time difference), then as more cases of the virus are confirmed European markets open lower, and finally the US stock market follows the downward trend. In terms of individual stocks, travel and leisure firms have been hit as have businesses that are reliant on global trading links to distribute their products or rely on overseas supply chains in order to make their products. 

There is of course an economic impact and if we needed any more confirmation, this event demonstrates the way the global economy is connected and how important China has become to world GDP. China is often seen as the "world's factory" and a slowdown in China will have a ripple effect across the world. This makes the markets nervous. 

What should you do as investors? 

There is little doubt that in the short-term at least, coronavirus will continue to impact markets. However, as long-term investors you do not need to be overly concerned or worried. Markets go up and down and selling due to bad news can often lead to bad outcomes for clients, locking in losses and jumping back and timing the markets is notoriously difficult to achieve. We understand that the current volatility in the world equity markets can be tough, but we believe it is important to hold your nerve particularly in periods of market stress. 

The best cure for market volatility is time. No better example is that since the last market correction in Q4 of 2018, the MSCI World Index has rallied 22% despite last week's pullback. 

Investment review and final thoughts 

At moments like this, it pays to review all your investments. Are they aligned to your risk profile and do they match your objectives? Our independent financial advisers would be very happy to undertake a review on your behalf, particularly if your investment horizon is shorter term or you are approaching retirement. Remember a well-balanced portfolio with the appropriate diversification is a key aspect to successful investing, as is making sure that you are making the best use of all available tax shelters. 

Please note in relation to the attached performance graph: past performance is not a reliable indicator of future returns

For more information read: Our Investment Policy Committee review what to do in times of market volatility; LGT Vestra weekly snapshot - Coronavirus further comment

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