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.
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