Ripple effects are likely to be felt across all global sectors and as a result, BCA Research estimates that global growth is likely to be cut in half during the first quarter from 3.3% to 1.7%. As a result, we expect many companies to miss first-quarter earnings.
In three of the last five viruses, markets corrected as negative headlines dominated investors' attention. However, in 2003 during SARS, markets rallied as the economy was coming out of the 2002 recession. Likewise, during the swine flu in April 2009 when global stock markets bottomed in March 2009, the market rallied as it started discounting that a global recession was over. See Table 1. The average decline in the stock market indexes during Ebola, MERS and Zika is as follows; S&P 500 Index -4%, TSX Composite Index -4.7% and MSCI World Index ex. USA -6.7%. Given that Covid-19 has caused more deaths than SARS, we would expect markets to pull back more than average and would remind investors that annual stock market corrections in the range of 7-10% are normal.
Media attention on the virus plays an emotional role in the stock markets. News flow regarding a virus has typically peaked at an average of 46 days. Using January 20th as the start of the news flow, that means stories about the Covid-19 virus should peak around March 5th. However, it may go beyond that date due to the rising number of deaths.
Source: Scotiabank GBM Portfolio Strategy, Bloomberg.
What Should Investors Do?
At Matco, we remain committed to our M-Factor Process focused on company investment characteristics and our investment strategies remain fully invested during this period. Our Global, Canadian and Small Cap Funds remain defensively focused on high dividend paying companies and have limited exposure to highly volatile commodity sectors such as energy and gold/silver.
To find out more about our M-Factor Process and key investment characteristics that we examine, please contact one of our Portfolio Managers at 1-877-539-5743.
ANIL TAHILIANI, MBA, CFA
Vice President, Portfolio Manager
Founded in 2006 to manage and service seven family offices, today Matco offers the benefits of our extensive investment management experience to individual investors, foundations, endowments, condominium corporations, trusts, corporations and not-for-profit organizations.
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