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From Coronavirus Epidemic to Market Panic - Sun Life Asset Management

| 27 Feb 2020

How is the COVID-19 coronavirus epidemic affecting the market? Sun Life Asset Management shares in this market commentary. Here are three key points that you can keep in mind if your clients are asking about the situation.

While the number of new confirmed coronavirus cases in China is showing signs of ebbing, rapid growth of infections in South Korea, Italy and Iran has sparked concerns about the situation evolving into a global pandemic. Investment sentiment turned sour with global stock markets registering sizable losses.

Below are Sun Life Asset Management’s latest thoughts on global financial markets released on 27 February 2020:

1) Risk off sentiment triggering market reversal

The spread of the epidemic to Italy and Iran shocked some investors who originally thought the epidemic was mostly an Asia situation.

Investors also felt disappointed as they thought the peak of the epidemic had passed.

Shakened confidence and worsened sentiment triggered market selloffs. Within days, market mood has rapidly changed from risk on to risk off with risk assets fallen sharply.

We believe that market sentiment would stabilize when markets have digested the negative news.

 

2) Global economic risks rising

Impact of the coronavirus epidemic on Chinese economy is expected to be more severe compared to that of SARS 17 years ago.

As China's economy accounts for 17% of global total GDP and it is the largest trading partner of many neighboring countries, it is inevitable that these economies would be affected.

We believe global economy to be further hurt amid outbreak of coronavirus in Italy and South Korea.

It is worth noting that northern part of Italy is the country's most affluent area and the two Italian regions most affected by the virus account almost a third of the country's economic output and about 40% of Italy's exports. If the country fails to contain the outbreak, it would greatly damage the economy and Europe would be dragged down.

As for Korea, majority of South Korea's exports are intermediate goods, meaning that any industrial shutdowns will further affect global supply chain.

 

3) Investment opportunities

The development of the epidemic would cause markets to fluctuate in the coming months. Companies that are sensitive to economic cycle may face difficulties and trigger waves of market decline.

We have been reminding our investors to distinguish between lump sum investment and regular investment. For lump sum investment, we suggest asset allocation should be cautious. For regular investment, we suggest investors use investment horizon to choose the right strategy. If investment horizon is long enough, investors can consider to capture the opportunities of market decline to accumulate assets at lower prices and wait for harvests when markets rebound.

As financial practitioners, you know the drill: This is for informational purposes only. It is not a recommendation to purchase, sell or hold any particular investment product... 

 

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