As we have entered the second week of the coronavirus outbreak, the severity has emerged much deeper than what has been expected initially. Though there were good and encouraging corporate earnings reports revealed last week in the US, but the market indexes were all have been suppressed and was presented a negative return at the end of the week (Chart A).
World Health Organization finally declared global health emergency on Thursday. It shows the severity of the epidemic. As the number of people and countries being affected is still on the increase, it looks like this epidemic is not going to be contained in just a number of days or weeks.
Right at the beginning, the Chinese government was willing to construct temporary hospitals. One of them is targeting to finish by February 3rd, 2020. It shows the determination for a long-term combat with the virus. As of this writing, the death toll has surpassed over 250 cases, the infected case has reached almost 12,000 cases and the affected countries has reached 28 (Chart B). By the time, you read this blog, the number could have been much higher.
Chinese Government Efforts
Thanks to the Chinese governmental effort to contain the virus with swifty decision with tough measures. These swiftly decisions included quarantined affected cities, cancellation of Lunar New Year celebration, imposed travel restriction, extended the Lunar New Year holidays, etc. Most of the infected cases are found inside China and fatality has also been confined mostly within China.
The good news is; coronavirus is not as deadly as the SARS. The death rate is slightly more than 2% as compared to 10% for SARS (Table A). But the bad news is that this coronavirus spread is faster than SARS. On the other hand, China has the faster and has the strongest hand to combat the virus spread than any other country in the past. I believe the Chinese government will earn the greatest respect from the world after this event.
When Chinese market opens on Monday after the Lunar New Year holiday extended break, I believe there will be a big gap-down heavy selling. We do not know how long this market selling will continue. But we can roughly know that the effect on the market down-time selling will not be as bad as the SARC.
There are a few choices mutual fund investor using Fundsupermart can response in this new development. The first response is to keep calm and watch for another week of development. If your equity exposure is not high at this moment, you may choose this response.
if there is any significant drop of market, you still have reserve to rescue your troubled funds. When the time comes for you to escape, it wouldn’t be too late.
If you are a nervous type of investor, you may choose the second type of response. You can opt to cut loss and pull back to either bond fund, money market, or switch immediately to gold related funds. You choose this option if you see that the combat with the virus will take longer to handle, possibly months, not weeks ahead. By the time everything is under control, the market would be at their low points. That will be the best time to reenter the market at their low’s.
This will be better than seeing your funds follow the market going down helplessly. If you have this view, the loss you realize now is not really a loss. Because you will gain them back easily later. However, there is one catch here; provided that the market will really go down severely. Only then, this option is a wonderful choice.
A good tip to highlight everyone here. If you expect market will continue to be affected by the coronavirus, and if you invested any equity fund in AmFunds Management Bhd, you could switch your equity fund or a portion directly to gold related fund, which is the Precious Metal Securities. This switch is totally free of charge.
If you have invested any equity fund with RHB Asset Management Sdn Bhd, you may switch directly to RHB Gold and General Fund. But this switch will incur a switching charge of RM25.00. If your fund is large, this charge amount is not that significant comparatively. The reason you are doing this is because you expect equity market will be going down continuously for the next few months. If not, this move may not be necessary.
Keep watch and invest safely!
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The view and opinion expressed are personal views of the author and are subject to change based on market and other conditions. This write up does not constitute sole advice for investment decision. Investors are advised to do further reading and research to conclude individual decision.