Sadly, the Wuhan Virus is proving more devastating than earlier expected. The latest figures yesterday afternoon showed that the death toll had already risen to 102, with more than 4,500 cases confirmed. These numbers are almost certain to mushroom.
The coronavirus has also impacted global stock markets as investors fret about the financial impact of the disease.
The S&P 500 in the US fell 1.6% on Monday, while the Straits Times Index at home in Singapore was down by as much as 3% yesterday. So what should investors do now?
Think long term
Unfortunately, the Wuhan Virus is certain to impact the world economy. Tourism to and from China is expected to fall. Shopping malls in China are closed. Schools and universities there have extended their Chinese New Year holiday and will only be reopened on a case by case basis.
China has even shut public transport in certain cities to discourage people from going out. It is likely that we will see consumers in China adjusting to the fear of the virus by going out less and spending less for a few months after the virus is controlled.
All of which will have a very real impact on not just companies in China, but around the world. The impact is exacerbated due to the Wuhan virus epidemic coinciding with the Chinese New year period- a period that usually sees higher travel and consumer expenditure.
That being said, investors should not let the near-term impact of the virus affect their investment decision making.
The SARs, H1N1, and Ebola epidemics have each been devastating. However, financial markets continued ticking on like clockwork.
As you can see from the chart above, the world has experienced 13 different epidemics since the 1970s. Yet, global stocks – measured by the MSCI World Index – has survived each of those, registering long term gains after each outbreak.
Where do you see the world in five years?
With society more prepared today to deal with a global epidemic, the spread and impact of the Wuhan virus will also hopefully not be as devastating as prior outbreaks.
Perhaps the best way to keep a clear head in these uncertain times is to do a simple mental exercise.
Consider the questions below:
- In 5 years time, will Chinese consumers still fear going out?
- Will shopping malls in China still be closed?
- Are public transports likely to be still shut down in five years time?
- Will we still even be talking about the Wuhan virus?
I think the most likely answer to all of the questions is “No”.
The Good Investors’ conclusion
Sadly, the Wuhan virus is having a devastating impact. Lives have been lost and the number of deaths is likely to balloon. My heart goes out to everyone affected by this destructive disease.
But from a financial point of view, we as investors should not let the near-term earnings-impact cloud our judgement. Yes, the Wuhan virus will likely affect the economy and bottom-line of some companies. However, I believe the world today is better equipped to curb the spread of an outbreak than ever before. As such, I believe investors who continue to focus on fundamentals, ignore the noise, and think long will likely be rewarded eventually.
Disclaimer: The Good Investors is the personal investing blog of two simple guys who are passionate about educating Singaporeans about stock market investing. By using this Site, you specifically agree that none of the information provided constitutes financial, investment, or other professional advice. It is only intended to provide education. Speak with a professional before making important decisions about your money, your professional life, or even your personal life.