The coronavirus & markets

19 March 2020 – The coronavirus & markets – reflections on a fast-evolving crisis

Taking the long view – both into history and into the future – can help investors manage through the worst markets have to offer.

Investors always have a long list of things to worry about but, in 2020, the coronavirus COVID-19 has very quickly eclipsed them all. With global stock markets gripped by fear and currently languishing far below the levels at which they started the year, we wanted to take stock of the evolving crisis.

Compare and contrast
For the vast majority of us, these are unprecedented times, as increasing numbers of countries go into lockdown and daily life is utterly transformed. COVID-19 is a highly contagious virus which spreads quickly and, although some regional containment measures have ultimately been successful,  we are already living through a global pandemic.

At this stage, it is hard to make meaningful conclusions about the fatality rate, although there is certainly some evidence that the rate is lower than it was during SARS in 2003 or the Spanish flu pandemic of 1918, which tore through a global population that was already devastated by the Great War. Clearly, the number of cases is currently rising very fast and it remains too early, especially in the UK, to gauge how much worse it can get, although the latest research suggests the fatality rate is worse than seasonal flu.1

Examining the epicentre
For many weeks, Hubei province in China accounted for the majority of cases; it was the region from which the virus first emerged late in 2019. Even at its epicentre, however, the number of cases was very small as a proportion of the overall population. More recently, of course, the virus’s spread has since hit Southeast Asia, Europe, and the Americas hard.

But when the contagion began its spread, the Chinese authorities, which had been criticised for inertia in the handling of SARS in 2003, sprang into containment action, effectively quarantining the entire province of Hubei and all its 58.5 million citizens. These looked like extraordinary measures at the time; they look less extraordinary now.

As the virus spreads globally, the number of cases and fatalities inevitably rises – as of 16 March 2020, there are 162 countries with reported cases.2

Little wonder, then, that the crisis has gripped the global media and financial markets with fear. This has, of course, significantly raised anxiety levels within society and the political pressure to act has been extraordinary. Several governments around the world are now emulating the tactics deployed by Beijing, in their efforts to contain the spread of the virus, often at enormous economic cost. Policymakers have also responded with fiscal and monetary stimulus to offset this cost of containment.

For those us of who work in finance, epidemics are not our area of expertise, and we are not in a position to assess the response of governments, and the measures that have been introduced. But we do recognise that governments are privy to the advice of scientists; and that their priority will, rightly, be to protect human life.

The cost of containment
The economic consequences of the virus obviously rank below the social impact when it comes to a health crisis like this. However, when schools and offices are shut for a prolonged period, it is bound to have a major and very tangible effect on economic activity.

With respect to China, some commentators have argued that the economic impact of SARS in 2003 was relatively modest; but this is a flawed comparison because China is so much more important to the global economy now than it was then.

Closer to home, research from the University of Oxford has suggested that the pandemic would likely have a severe but short-lived impact on economic activity.3 This modelling suggests that, “Even with all schools closed for 3 months and many people avoiding work when they were not sick, the largest impact we got for GDP loss over a year was less than 5%.” 4

These academic studies may provide some reassurance, but the reality is that the full economic cost of COVID-19 cannot yet be accurately quantified by anyone. This lack of a reliable roadmap has been enough to rattle global stock markets, which always loathe uncertainty.

A disciplined perspective
The human cost of this tragic crisis is awful, as is the fear that the potential risk has instilled in so many people. From an investment perspective, however, it’s important to keep the crisis in proportion. Financial markets have been rocked by the uncertainty that COVID-19 has provoked, but the largest economic hit will be linked to lockdowns, which are currently expected to end in the coming months.

The fact that stock markets fell so sharply as the crisis escalated is, of course, indicative of significant selling pressure. History suggests, however, that selling is usually an inappropriate response to unfolding events, particularly from a long-term perspective. Selling assets in such a febrile market environment is typically an emotional response, not a disciplined response.

Discipline lies at the heart of the St. James’s Place investment approach. As always, we are taking a rational look at what’s happening, not an emotional one. And we are applying a long-term lens to this investment journey.

We urge our investors to do the same.


The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

The opinions expressed are those of the fund managers listed above and are subject to market or economic changes. This material is not a recommendation, or intended to be relied upon as a forecast, research or advice. The views are not necessarily shared by other investment managers or by St. James’s Place Wealth Management.
3 Simon Wren-Lewis & Marcus Keogh-Brown, The possible macroeconomic impact on the UK of an influenza pandemic, University of Oxford, Department of Economics, 2009
4 Simon Wren, 2020