From late December 2019 a new virus outbreak, officially called Covid-19 (a.k.a. “coronavirus”), emerged out of Wuhan, China. To date this outbreak was focused on China which accounted for 96.7% of 80,423 confirmed cases and 98.4% of 2,708 reported deaths (as at February 26). However, in recent weeks we have seen notable growth in cases particularly in South Korea and Italy as well as Japan, Iran and elsewhere in Europe.

Markets had arguably been rallying in recent weeks despite virus concerns on the assumption that it would be contained. This had seen share market valuations become stretched which heightened the damage we have seen in the last week when investor sentiment weakened.

One of the most unsettling aspects of market downturns is the fact they are out of your control.

Why you should remain calm

Markets move based on numerous variables that no one person can meaningfully control or even fully monitor. And when stock prices falter, the resulting steady drumbeat of negative news reports can drive many people to flee the markets out of fear (and miss out on potential gains as financial markets regain their strength). But when others are pessimistic, you can reframe the situation as one of opportunity.

No one can predict the future, but plenty of research suggest ways that forecasts can be improved. [1]

One way to improve the accuracy of a forecast is to start with base rates. How often do outbreaks become epidemics? What effect do epidemics have on economies or markets? For this latter question, we look to Exhibit 1 to provide a sense of base rates—market returns following major epidemics in recent history.

Exhibit 1: Investors Tend to React to Epidemics, But the Long-Term Picture is Positive

Remember that bearish market conditions—while inevitable— don’t last forever. As a savvy investor, you can ignore short-term pullbacks of the market (and any commentary that might cause you to veer off course) and remain committed to achieving your long-term vision.

Downturns come and go. The results of a well-designed and faithfully followed plan, on the other hand, can serve you the rest of your life.

Book an appointment online or call us on 08 8208 4777 if you are having any concerns about your financial position in the market and we will guide you through the downturn.

Click here to see our article on steps you can take to weathering market lows.