Industry Voice: In extreme market stress, tenacity is a small cap investor's best weapon

While smaller companies often bear the brunt of risk aversion, they also lead the way to recovery.

clock
Industry Voice: In extreme market stress, tenacity is a small cap investor's best weapon

The unprecedented threat posed by the novel coronavirus to public health, and the extreme measures by governments to contain its spread, have had severe knock-on effects for the global economy. Just how long and deep this economic disruption ends up being, however, is difficult to determine. This "fear of the unknown" is being reflected in the world's financial markets and, until we see clear evidence of the pandemic's containment, volatility will continue to shadow markets.

The coronavirus pandemic is certainly a "black swan" financial market event - coming from nowhere to present a new and significant risk. However, what is not new is the extreme psychological response from investors in the face of this risk. This herd mentality - of individuals acting collectively in response to a perceived threat - is an understandable, and remarkably consistent, human behaviour. As such, the kind of fear-driven investor response we are seeing currently is well known, and our investment playbook in this environment is tried and tested. As in previous market crises, a resolute focus on fundamentals, and maintaining a long-term perspective, are crucial to successfully negotiating this difficult period.

If there was any doubt, the seriousness of the threat posed by the coronavirus pandemic has been made clear in recent weeks with heavy losses recorded on US and global equity markets. However, it has been the pace of the declines that has particularly shocked investors. From an all-time high on 21 February 2020, the S&P 500 Index suffered the quickest descent into a bear market (i.e. a fall from peak of more than 20%) on record - just 16 days - as fears about the global spread of the coronavirus took hold.

Important Information

For professional clients only. Not for further distribution.

This material is being furnished for general informational purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, and prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision. T. Rowe Price group of companies including T. Rowe Price Associates, Inc. and/or its affiliates receive revenue from T. Rowe Price investment products and services. Past performance is not a reliable indicator of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested.

The material does not constitute a distribution, an offer, an invitation, a personal or general recommendation or solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. The material has not been reviewed by any regulatory authority in any jurisdiction.

Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources' accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of the date noted on the material and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price.

The material is not intended for use by persons in jurisdictions which prohibit or restrict the distribution of the material and in certain countries the material is provided upon specific request.

It is not intended for distribution to retail investors in any jurisdiction.

This material is issued and approved by T. Rowe Price International Ltd, 60 Queen Victoria Street, London, EC4N 4TZ which is authorised and regulated by the UK Financial Conduct Authority. For Professional Clients only.

© 2020 T. Rowe Price. All rights reserved. T. ROWE PRICE, INVEST WITH CONFIDENCE, and the bighorn sheep design are, collectively and/or apart, trademarks or registered trademarks of T. Rowe Price Group, Inc.

Advertisement

More on Equities

Saturna and HANetf unveil Islamic-compliant ETF

Saturna Capital and HANetf target sharia-compliant stocks with actively-managed ETF

Incorporates ESG criteria

clock 25 November 2021 • 1 min read
Partner Insight: How can global equity investing benefit from the Corporate Life Cycle Concept?

Partner Insight: How can global equity investing benefit from the Corporate Life Cycle Concept?

Peter Rutter, Royal London Asset Management’s Head of Equities, tells us about the Global Equity Select Fund

RLAM
clock 22 November 2021 • 4 min read
Investment Association calls on companies to keep executive pay and bonuses in check
ESG

Investment Association calls on companies to keep executive pay and bonuses in check

Urges “restraint”

clock 19 November 2021 • 1 min read