The Coronavirus has become the new “topic in the spotlight” of investor concerns, and for good reason. The virus was first reported to the World Health Organization on December 31, 2019. Before January had ended, there were over 10,000 confirmed cases and more than 200 deaths.
The illness is highly contagious and has demonstrated a lethal impact not seen in the world for several years. New strains of viruses with unknown consequences and no known cures are frightening for all of us. As of February 20th , the number of confirmed cases is over 75,000 and the number of deaths has surpassed 2,000.
Fortunately, the increase in both confirmed cases and the death toll have begun to slow down and, like a wildfire, have begun to show signs of partial containment. We’re not out of the woods yet, but the public levels of concern and fear that a developing rampant contagion could develop, may be greater than what we are likely to experience (fear of what could happen is greater than the reality).
Investment markets, particularly in regions most impacted by the presence of the Coronavirus, sold off sharply during the last 2 weeks of January. Since the selloff, the U.S. market has rallied to make new highs, while the rest of the world has recovered about 50-75% of their declines.
More than two thirds of the US economy is comprised of consumer spending (68%). The rest of it is made up of government spending (17%), business investment (17%) and the balance is foreign trade (-3% net,
exports are 12% and imports are -15%). Because our economy is driven by consumer spending and not driven by a manufacturing, the US is likely to have a lessened impact from the Coronavirus.
Other countries typically have a much smaller share of their economy driven by consumer spending. As a result, those economies are going to be more impacted by any kind of an epidemic or pandemic. So, it makes sense, that foreign stock markets have not yet fully recovered – it’s a little too soon for that to happen.
If I’m right about Coronavirus being contained, then it is likely that impact will largely be felt in the first quarter of the year. The balance of 2020 is likely to experience a significant uptick in economic growth for the emerging markets along with a commensurate uptick in equity prices.
Most foreign markets are priced at unusually low levels relative to both historical and projected earnings. By some measures, emerging market indexes are priced near their lowest levels relative to
their US counterparts over the past 20 years.
With concerns of the possible negative impacts from the Coronavirus, China and other countries have begun to provide economic stimulus through monetary policy, liquidity infusions, and fiscal programs. With the combination of low valuation, economic stimulus, and the prospect of a lessening of the potential impact from the Coronavirus, it appears that the prospects are improving for investments in emerging markets.
If you don’t already have exposure, or have limited exposure, to emerging markets, you should begin to increase your holdings now. Some of the best investment entry points develop when things look their worst.
Schedule a free consultation with our team to discuss how you can best leverage your assets amidst these uncertain times.
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