Investing During Coronavirus

James Pearcy-Caldwell Europe, QROPS, Tax

Investing During Coronavirus

When we consider investing during Coronavirus we point out that the current stock market volatility is unlikely to rebate in the shorter term. There will be large positive and negative swings in markets as new, previously unthought of consequences and outcomes emerge. We anticipate waves of concerns rising within different sectors and countries as the full impact feeds through. We are only in the first wave.

For more information on the economic impact of COVID-19, see our previous article.

International factors affecting investing during coronavirus pandemic

Whereas the immediate concern is our health, the length of suppression or ability to cope with published mortality rates, we believe that the focus will switch soon onto companies’ and countries’ ability to finance themselves. Hence, our concern is the impact on business and country fiscal positions, and how this will affect investing during the coronavirus pandemic. Starting with Italy, a country that was already weak economically, there are now some forecasts of a drop in GDP this year of -11%, which, if anywhere near accurate, would be devastating.

Normally the more powerful Eurozone countries would be expected to provide support. The limitation is that countries with large manufacturing bases will likely be badly impacted by the closed borders. Germany for example, is forecast to have a GDP reduction of up to -8% this year. For more background on the state of Italian and German manufacturing prior to the most recent coronavirus impact, read an interesting article here.

Most countries were affected the last financial crisis in 2008, but only a very few came under pressure such as Greece, Cyprus, Iceland, Ireland and Portugal. It is likely that many more countries are going to be badly affected this time and, unlike last time, there has been a far more nationalistic approach initially, with little cross border assistance or co-operation.

Conclusion

This will put a strain on banks, and also currencies. Banks in the UK and the USA either failed or had to be part-nationalised in 2008, it is likely that weaker European banks will be under greater pressure this time as they have not sufficiently recapitalised. If, for example, an Italian bank were to fail in the coming 6 months, there could easily be a domino effect leading to it being a problem for the German and French banks. In this instance, the Euro could find itself under pressure.

There is no saying this is going to happen, but we are thinking ahead and looking at the possible outcomes in these circumstances, along with long-term implications for investing during Coronavirus’ spread. We are concerned by events in the US, the approach being taken and the idea that this is a short-term blip.

The views expressed in this article are not to be construed as personal advice. You should contact a qualified and ideally regulated adviser in order to obtain up to date personal advice with regard to your own personal circumstances. If you do not then you are acting under your own authority and deemed “execution only”. The author does not accept any liability for people acting without personalised advice, who base a decision on views expressed in this generic article. Where this article is dated then it is based on legislation as of the date. Legislation changes but articles are rarely updated, although sometimes a new article is written; so, please check for later articles or changes in legislation on official government websites, as this article should not be relied on in isolation.

This article was republished on 27th March 2020