WORDS ON WEALTH
The coronavirus will bankrupt more people than it kills. I am not sure where this truism originated, but it is worth reiterating. People who may remain unharmed by the virus stand to lose their jobs, their businesses, their investments.
No-one can say how long the world will remain in this catatonic state, but it will not be indefinitely. We have no choice but to ride it out and not give in to panic.
On the medical front, for most of the world, the worst is still to come. But we’re getting glimmers of hope from China, where the spread of the virus now appears to be under control. Behind the scenes, teams of scientists are developing a vaccine.
On the financial front, the situation is dire, with markets in turmoil. The longest bull run in the history of the Wall Street stock exchange is now officially over. The S&P500, the index of the top 500 US companies, plunged 30% from 3 386 points on February 19 to 2 377 on Tuesday last week. The MSCI World Index, which tracks the world’s top 1 600 or so companies, dropped in the same period from 2431 to 1751 points (down 28%).
Our own FTSE/JSE All Share Index was also 28% down, going from 57 940 to 41 579 points. Whereas the US stock market had been at an all-time high before the plunge, the JSE had been hobbling along, having reached its record of 61 000 points back in January 2018.
Equity and multi-asset unit trust funds are reflecting the turbulence. Taking a cross-section, five popular funds showed the following drops in the 30 days up to Tuesday, March 17:
* Allan Gray Equity Fund: 28.64% down;
* Coronation Balanced Plus Fund: 20.61% down;
* Foord Flexible Fund of Funds: 14.84% down;
* Investec (now Ninety One) Managed Fund: 9.79% down; and
* Old Mutual Global Equity Fund: 14.78% down.
Izak Odendaal and Dave Mohr, investment strategists at Old Mutual Wealth, say that despite panicked selling, the basic plumbing of the financial system - liquidity, trading, lending, and so on - has functioned relatively smoothly thus far.
“The major banks are in a strong position and can absorb some of the stress of their borrowers, rather than add to it. This is a major difference compared with the 2008 financial crisis and will be very important in supporting the economic recovery when the viral outbreak subsides,” they say.
Odendaal and Mohr say we will get important early clues from China as to how consumers respond now that the worst there is seemingly over. “Will there be an explosion of pent-up demand for goods and services? Or will they remain deeply cautious and keep their wallets closed? The answers to these questions will be very important in determining how quickly the global economy can bounce back.”
Wynand Gouws, a Certified Financial Planner professional at Gradidge Mahura Investments, says it is almost impossible to predict how the markets will react or recover during this pandemic.
He has the following advice for investors:
* Stick to your plan.
“Your financial plan should be developed to consider your personal objectives and your risk profile. It is important to review your plan to ensure this still aligns to your objectives.Your risk profile should remain intact during both bull and bear markets.”
* Let the professional money managers do their job.
“A diversified investment portfolio should include several investment managers and investment mandates aligned to your risk profile. The managers will align the underlying portfolios to the current market conditions and increase or decrease the equity exposure within the parameters of their mandates to manage your portfolio and risk on your behalf.”
* Now is the time to be frugal.
“Be cautious, cut back on luxuries and where possible build up a buffer or emergency fund. Given the continued uncertainty, it is important to diligently manage expenses and be conservative with your finances,” Gouws says.