The coronavirus crisis has caused the markets to report heavy losses far beyond the boundaries of China, the epicentre of the pandemic. The countries to have been hardest hit are Italy, Iran and South Korea, among other notable cases. In response, countries have been adopting a whole raft of preventive measures in a bid to cushion the impact that the coronavirus is having on the global economy. The health authorities are taking the necessary control and prevention measures, while the financial authorities have also responded by lowering interest rates. For instance, both the Federal Reserve (Fed) in North America and the Bank of England have lowered their interest rates by 50 basis points. Australia has followed suited, while other countries are either adopting expansionary fiscal measures or weighing up the pros and cons.
Figures retrieved from the Chinese General Administration of Customs reveal that exports were down 17.2% in February, causing the trade balance to record a deficit of 7.09 billion dollars; a far cry from the surplus of 47.21 billion dollars reported in January. This figure shows that economic activity in China has ground to a halt. However, once the situation has been brought under control, economic activity will begin to rally, as will the demand for energy.
As for the likely course of events, experts have pointed out that this impact on economic growth is transitory and not permanent, although it is impossible to say when the recovery will begin. It is important to remember, however, that the world economy has already endured similar crises on more than one occasion. Here, we need look no further than the 9/11 attacks, SARS, Lehman Brothers, the trade war between China and the United States or the United Kingdom’s withdrawal from the European Union.
While the economy certainly took a hit during all these episodes, it is also fair to say that it rebounded each time, because crises also mean opportunity and are always followed by a recovery. Things will be no different with the coronavirus. Gerard Albà, Vall Banc's General Manager of Business notes that “to cope with this crisis and any others that emerge down the line, we must remember the importance of diversified long-term investment strategies across different asset classes, while also taking individual objectives into account, in order to avoid episodes of volatility and irrational panic in the short term, as we are seeing now”.
Vall Banc has a cutting-edge tool known as Aladdin Wealth, which, according to Albà, “allows us to design and build efficient portfolios that are tailored to the customer’s risk tolerance and investment objectives. It also allows us to analyse a large number of risk factors and study hypothetical scenarios by simulating historical events to gauge the potential impact on this portfolio. We already have a coronavirus scenario set up to show customers the likely impact on their investments”.
