Viruses and their effect on markets

07 February 2020

Over the few past weeks the media has been filled with information on the outbreak of the coronavirus in Wuhan, China. Cities have been put into quarantine, airports have been shut down, airlines have stopped flying and corner stores have sold out of everything from masks to bleach.

Market Talk Feb 2020 Virus Graph

How does this compare to other epidemics recently?

While the virus continues to spread, it’s worth noting that so far it has been significantly less fatal than the Ebola outbreak in 2018, the SARS virus in 2003, or the much more severe swine flu.

If we take a step back, we can see that epidemics such as this occur quite regularly but are always resolved through the infection spread numbers dropping, containment measures being put in place or, better still, our ability to find and implement a cure.

How has China responded to this?

The Chinese government has already announced billions of dollars in support for its economy so far and remains focused on continuing that support throughout the epidemic. Given their government has almost US$3 trillion in reserves, China has a bit of financial power to intervene where necessary and continue to support their country and economy during these troublesome times. When the epidemic is resolved, people will be able to return back to work, start spending and travelling which all contributes to economic growth.

What has Booster done in response?

Over the last few months, some of the important factors we use to measure the NZ economy have been improving such as inflation rising steadily and the housing market in NZ starting to pick up again. This made us think that interest rates in NZ may start to increase so we had made changes to our Booster portfolios to prepare for this. However, given the current situation, it looks like the global economy may slow down a little in the short term. If this happens, this will give the Reserve Banks around the world (like our Reserve Bank in NZ) a reasonable excuse to keep interest rates lower for longer. The main area that this epidemic has had the biggest impact on, in relation to the share markets, is tourism . Good news for our investors, we don’t have many tourism-related investments in our Booster portfolios. In NZ, there are two key tourism companies that stand out, Air New Zealand and campervan rental operator, Tourism Holdings. Both of these stocks dropped in value by 10-20% over the last few weeks. Currently at Booster we only hold a small investment in Air NZ and we don’t currently hold any investment in Tourism Holdings.

Overall, we don’t really know when this epidemic will run its course, and while we can’t understate the tragic impact on individuals, families and communities, history suggests that any impact on the economy and share markets won’t be long lasting, based on similar past epidemics.

What’s been happening in the markets?

The first month of 2020 saw the ups and downs of market volatility return to the global share market; first with the attack by US on Iran and retaliation, followed by the recent health scare of the coronavirus. While global markets ended up close to even by end of the month, the falling value of the NZ dollar increased the value of overseas shares for NZ investors, supporting returns.

Long term interest rates around the world dropped by 0.25% which indicated that investors were treading cautiously given the potential negative impact that the coronavirus epidemic may have on global growth.

We’ve announced some exciting news for NZ Innovation Booster LP! At the end of 2018 we set up the NZ Innovation Booster LP with Victoria University’s research arm, Wellington UniVentures. To date, the partnership has invested in four exciting companies and this month we have added two more; cancer diagnostics company Ferronova and antimicrobial coatings business Inhibit. We are excited to be investing in these kiwi ideas that have the potential to transform their discoveries into products or services that can provide real benefits to our communities. Jump to our blog to learn more.

If you have any questions about your investment, the best person to speak to is your financial adviser. We want every Kiwi to have access to financial advice so connecting you with an adviser is at no extra cost to you in relation to the Booster KiwiSaver Scheme. If you are a Booster member and have not yet had the opportunity to speak to one of our advisers, please get in touch here – “I’m keen to chat to an adviser!”

“Booster KiwiSaver Scheme is managed and issued by Booster Investment Management Ltd. A copy of the Product Disclosure Statements are available at www.booster.co.nz. A disclosure statement is available from your financial adviser, on request and free of charge."

Daniel Haskell

By Daniel Haskell

Booster Adviser