Will coronavirus undo the gains of a Brexit bounce?

This special Saturday is the first full day for 47 years when Britain is not a member of the EU or its forerunner, the European Community. It is a historic moment, but does it have any relevance for shares?

In the short term, no, but the long term is a different matter. Independence means that the future of Britain – and British shares – is truly up to us. If we were still a member of the EU, there would be plenty of rules and directives telling us what we must and must not do. But now Britain has the legal capacity to give up those rules and many others.

British voters will decide what kind of country we become. We could become a deregulated Singapore of the North Sea or, at the other extreme, a Cuba or Venezuela. British shares could have a terrific long run or, if people vote for the Cuba option, shares could plummet.

Meanwhile, back in the here and now, the biggest influence until the middle of last month was the Conservative victory in the election. Two weeks ago today my shares were riding high as investors had new confidence that Britain would follow a pro-business, pro-investor agenda for five years at least.

House prices jumped. I was told by a corporate lawyer that a whole lot of business deals quickly went through. A survey by the Confederation of British Industry showed the biggest transformation in manufacturers’ optimism since 1958, when records began. There has been an eruption of relief and positivity.

On the crest of this wave, I have had some excellent gains. I bought shares in SSE, the energy utility company, just before the election and on election day itself, and the shares were 14pc higher at the end of last week. It has been one of my best performers.

But since the middle of last month, concern about coronavirus in China has taken the wind out of the markets and my shares. Companies that depend on commodity prices have been hard hit. China has become such an important consumer of commodities that fear of reduced growth there has weakened prices.

Crude oil, the metals and the “softs” such as soybean oil and palm oil are all down. In line with this, most of my related holdings have fallen. My shares in BHP, the Australian mining and oil company, have dropped by 10pc from their recent high to £17.03 at the time of writing.

My stocks with activities in China have taken a drubbing, too. One of them, quoted in Hong Kong, is down by 14pc from its January peak.

How should investors react to this new virus? The event itself is, of course, a tragedy. People are dying. But in terms of practical economics, the effects may be quite limited.

My feeling is that the markets have overreacted, as they normally do in the face of sudden adverse news. Even if it turns out to be on the scale of the Sars crisis in the early 2000s, the impact on the world economy would still be small. It would be a mistake to sell shares during a temporary dip in prices.

Of course we do not know yet just how bad it will be. If the disease leads to a significant number of deaths in Europe, Japan or America, fear and worry will surely intensify and markets could fall further.

One must stay flexible, but for the time being I have sold only a few shares connected with aviation. I am hoping that the epidemic will not be much worse than Sars. If that proves to be the case, I think the post-election rally that was going full steam for the first two weeks of the year will resume.

One of my Chinese stocks, quoted in Hong Kong, is down by 14pc from its January peak

BEAST FROM THE EAST Coronavirus has hit the Chinese economy