Canny View: Covid-19, the markets and your money

Rest in Peace Posters of Dr Li Wenliang, who warned authorities about the coronavirus outbreak seen at Hosier Lane in Melbourne, Australia. Photo / Supplied

There is currently a lot going on: coronavirus (Covid-19) concerns, market volatility, interest rate cuts, cancelled meetings, oil supply war and the upcoming US election.

The outbreak of Covid-19 is first and foremost a human tragedy, affecting many people around the globe. It is also having a growing impact on the global economy and stock markets.

When Covid-19 first made headlines during Chinese New Year in late January, it was unclear to what extent it would affect global supply chains, movement of people, and regional and global economies. In short, it presented a new variable, one not on anyone's radar.

One key thing we have learned from managing money for many decades is surprise leads to uncertainty and uncertainty to market volatility.

There is no sugar-coating, the economy will take a hit from Covid-19. The World Health Organisation (WHO) declared a global pandemic as the virus spreads across the world.

The market is trying to figure out how significant and long-lasting the effect will be hence the large swings in the market. This volatility is likely to settle down with governments around the world preparing major interventions to help economies cope with the anticipated disruption caused by the spread of the disease.

This week the New Zealand Cabinet approved the development of a Business Continuity Package to help support the economy during the current disruption.

"New Zealand is well-placed to respond to Covid-19. We have been running a surplus and our net debt position at 19.5 per cent of GDP is well below what we inherited, and well below other countries," Finance Minister Grant Robertson says.

On a global level, the US President promised a "major" economic relief package including a possible payroll tax cut.

Italy plans to suspend mortgage payments and other household bills across the entire country as it enters an unprecedented lockdown. China's president made his first visit to Wuhan, the city at the epicentre of the country's outbreak, in a signal that the Communist party believed it had managed to control the epidemic.

The result: global markets stabilised on the same day from heavy losses as investors welcomed signs that policymakers would launch significant stimulus measures to soften the economic blow from the virus outbreak.

For investors:

What investors should be aware of is that the market could turn around as quickly on positive news. Therefore discipline, focus, a long-term view, and simplicity in executing investment strategies remain critical to the success of an investor.

Market timing is extremely impractical. If an investor had invested in the S&P 500 index from 1999 to 2018, and not touched it, the money would have tripled. But if the investor had traded in and out and had missed out on just the 10 best stock market days over that period – just 10 days – the returns would have only been half of that.

So, if you're thinking to move to safe havens like cash or term deposits until you think the worst is past, you might want to think twice.

Nick Stewart

KiwiSaver members planning to use their KiwiSaver funds to purchase a first home in the short-term may be concerned that their balances could drop.

It is best that they talk to their KiwiSaver adviser/provider first about the options available to them, these may be more defensive or less volatile funds, but the adviser/provider will be able to assist in making a decision appropriate for them.

For business owners:

Business challenges mostly fall into two categories: direct effects like staff falling ill and quarantine/restriction effects.

On an operational level, restriction on employee movement and holding face-to-face meetings with clients create immediate business challenges. But severe Covid-19 outbreaks will result in the suspension of all the physical interaction, making businesses think beyond their traditional IT perimeter to operate remotely.

For some this is an easy transition, especially smaller and newer tech-based companies that are already partially remote. But for many traditional businesses that are not ready to cut off from physical buildings, it means that their IT and data security systems will need to rise to the challenge if their employees must work remotely.

Also, most businesses will have crisis/incident and business continuity plans – and every business should. Regular stress testing these is essential. Covid-19 has already revealed flaws in some plans, make sure that's not the case for your business.

For the economy:

All the preventive measures like travel and border restrictions to deter the virus spread will dent the economy with sizable impacts for industries and regions. It is obvious that our export reliance on China comes with downside risks as well as opportunities.

As per the recent RNZ's report, "The first disruption to our economy will be from China, which last year accounted for 16 per cent of tourism income and 28 per cent of goods exports.

"It is estimated that some 15,000 tourism jobs and another 15,000 export sector jobs are most exposed to the current China shock. Japan, Korea and other countries may be next in line as the virus, and efforts to contain it, spread."

While it is tempting to look at the economic disruption during Sars in 2002-03, we must magnify it and understand the differences. The most affected economy by Covid-19 in the world is China and our economic relationship with China through tourism and trade is now roughly six times larger than when Sars hit.

No matter what impact this virus might have, it is always good to review your overall financial goals and objectives, business continuity plans and think about making them stronger. That's the only smart move in stressful times like these. We are all in this together, stay calm and wash your hands.

Nick Stewart is an Authorised Financial Advisers and CEO at Stewart Group, A Hawke's Bay-based CEFEX certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver solutions.

The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from an Authorised Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz