With a near hundred-point fall in the ASX 200 yesterday on the back of escalating fears about the Coronavirus, it is worth examining what sort of impact this could have on the market over the short-term.
While it is too early to see how severe the spread of the disease will be, there is precedent in the SARS crisis in 2003. There is evidence to suggest that the Coronavirus is less deadly than SARS and that the response has been swifter than in 2003, but even assuming an epidemic as serious as SARS suggests being overly concerned about the impact on Chinese and global growth might not be warranted.
Despite the impact SARS had on global growth in 2003, it is worth remembering that the market actually ended up 10% throughout the year. The market is forward looking and expecting the global economy to be severely impacted over the long-term is an extreme view. Over the short-term, there is no doubt we could see a slow-down in China which could impact ASX-listed companies with an exposure to commodities and consumer discretionary, as well as tourism related stocks with revenues from China. We have already seen tourism stocks such as Sydney Airport (SYD) and QANTAS (QAN) fall significantly, but if history is any guide then these dips may ultimately provide buying opportunities.
Likewise, consumer facing stocks may not be impacted as much as in 2003. Internet shopping has become far more common over the last seventeen years and much of the lost commerce offline will be replaced with online shopping.
Of course, markets today have enjoyed fantastic rallies since the beginning on 2019 so this may ultimately be a catalyst for some short-term profit taking, but I think it would be a mistake to assume that the Coronavirus will be the end of the favourable market conditions that are driving markets higher over the long-term. Until the global interest rate and/or inflation environment starts to show signs of changing course, we remain comfortable with the long-term outlook for equities and continue to believe our strategies are well-placed for this outlook.
