Coronavirus fallout hits pensions and ISAs as investors urged not to flinch

Fear wipes billions off Chinese stocks as slumping economy remains in lockdown

Death toll has surpassed 420 and there are at least 17,000 confirmed infections globally (AFP)

The first day back to work after a long holiday is always a bit grating. But for those logging in at the Chinese stock market for the first time since the coronavirus outbreak, all bets were off.

The rest of the world’s markets have been riding the waves of coronavirus-induced volatility for weeks now as the infection spreads, while the epicenter remained economically silent.

No sooner had the markets opened for the first time since 23 January – thanks to the Chinese New Year and an extra two days of shutdown tagged on the end by the Chinese government – than the whole thing promptly stalled, initially selling off -8.7 per cent in Shanghai and -9 per cent in Shenzhen during early trading despite a flurry of significant measures by the state designed to cushion the blow.

This time of year is always an odd one for the Chinese economy as the biggest annual human migration in the world sees the shutdown of factories for weeks on end while consumer spending soars.

This year, as the latest figures from the weekend reveal the overall death toll has surpassed 420 with over 17,000 confirmed infections globally, that really hasn’t happened.

And while we’d expect airlines and tourism to be affected, and Chinese currency to be offloaded faster than the latest shipment of face masks, the effects are being felt far and wide, from commodities to luxury goods.

“Stock markets around the globe have already been impacted negatively so investors will already have seen falls in some of their holdings in their pensions and ISAs,” says Russ Mould, investment director at AJ Bell. “This will be particularly acute for holdings in China specific funds as well as Asian or emerging markets funds more generally.

“While it may be tempting to head for the exit, long term investors should remember that it is time in the market more than timing the market that is important. If we look back to the Sars outbreak in 2002 – 2003, it had a short-term negative impact on markets but once the outbreak had been contained, they recovered very quickly.

“Investors selling at the first sign of short-term volatility lock in losses that have already been incurred and then miss the bounce back once things have calmed down and returned to normal. Some canny long-term investors may even be seeing now as an opportunity to top up their exposure to China or Asia more generally.”

That said, if the coronavirus is not brought under control soon the market is likely to continue to sell off Chinese and Asian stocks. Tourism – which alone accounts for around 10 per cent of Chinese GDP – transport, shipping and logistics will come under increasing pressure if more cities go into lockdown or the travel restrictions spread to major commercial hubs beyond China.

“It is possible that a sustained outbreak knocks luxury goods names like Burberry that are big in Hong Kong and China and who do a lot of business there or rely to varying degrees on Hong Kong and Chinese tourists travelling overseas,” says Mould, but adds that investors could turn to healthcare stocks for some insurance, depending upon the length and scale of the outbreak.

So what happens next?

The hope, of course, is that the coronavirus follows the path of Sars and other comparable outbreaks. In which case, after an initial slowdown in China and Asia in the first quarter of the year, most analysts seem to think markets will begin to rebound by the summer.

“The Chinese economy has been decelerating for over a decade,” says Fahad Kamal, chief market strategist at Kleinwort Hambros. “While this year might be worse than originally expected, it does not signal a dramatic new paradigm.

“This may also be offset by slightly better than forecasted growth in the developed world in 2020 as the stagnation in manufacturing appears to have stabilised, and crucially, has not been contagious to the wider services sector.”

“There is no doubt that staying calm as an investor in these situations can be difficult,” acknowledges Mould.

“It can help to remind yourself what your original investment objectives and time horizon were and decide whether the current situation really changes those.”

China and Hong Kong probably only represent a small portion of most investors’ portfolios anyway so the overall impact should be limited.

“Now is the time for a steady hand and to remember that short term volatility is something that will always be a factor when investing in stock markets, so it is important to stay focused on your long-term goals and objectives,” Mould says.