The markets have been ravaged but ...DON’T PANIC!

Yes, contagion is ravaging markets but advice is still...

READERS with a copy of The Hitchhiker’s Guide To The Galaxy might remember the famous travel guide came with DON’T PANIC helpfully printed on its cover. With financial markets across the world seeing dramatic falls as a result of coronavirus, investors would do well to adopt the same motto.

In the early days of the virus, the markets reacted and then seemed to steady themselves, leading to a belief that this was a temporary blip and things would soon return to normal.

But markets once again took fright last week as the virus continued to spread around the world – from Italy to Brazil – and equities across Europe, Asia-Pacific and the US all plunged.

Companies such as easyJet, British Airways and TUI all suffered huge share price falls while others forecast profit warnings as a result of the negative impact of coronavirus on retail sales, supply chains and manufacturing – leading to fears that dividends will be slashed further down the line.

With some financial experts predicting that coronavirus, combined with political tensions and troubled trade talks, could drive us towards a global recession, should investors remain calm?

WHY ARE MARKETS GETTING SO JITTERY?

WITH the slowing down of reports of new cases in China, it seemed markets were relaxed about coronavirus and had stabilised after the initial reaction. But last week, it emerged that there were now more coronavirus cases outside China than inside, and every continent on Earth bar Antarctica was affected by the disease.

Companies started reporting the impact of coronavirus on their businesses with tech giant Apple leading the way, warning that it was going to miss revenue targets and a global shortage of iPhones was likely – due to its Chinese factories being shut.

Travel companies were the next to be hit. EasyJet shares dropped more than a quarter of their value in less than a week as holidaymakers and business travellers postponed their trips, wiping £1.5 billion off its value, while shares in British Airways’ parent company IAG also fell sharply – as did stocks in Ryanair, TUI and Jet2.

Russ Mould, investment director at AJ Bell, says: ‘The travel sector could bear the brunt of the coronavirus impact, as people stay at home rather than taking on a perceived greater risk of infection by going on holiday.’ He adds: ‘We’re not that far away from a busy period for the travel sector as a large number of people like to go away at Easter time. Travel companies will be praying the virus is contained as quickly as possible.’

Leisure companies such as P&O Cruises owner Carnival, Wynn Resorts and Disney also saw significant share price falls, but other sectors are far from immune. Luxury goods company Burberry, which has a big Chinese fan base, announced that coronavirus was having a ‘material negative effect’ on business, with many of its stores in China closed, while LVMH and L’Oreal have also taken a hit.

The world’s largest drinks maker AB InBev said its first-quarter profits were going to be down by 10 per cent after the virus hit beer sales during Chinese New Year, while UK drinks producer Diageo, which makes Guinness, Smirnoff, Johnnie Walker and Tanqueray, said its profits were going to be down between £140million and £200million as bars and restaurants across China were forced to close.

Aston Martin was hoping to turn the troubled company around thanks to strong Chinese demand which is now in doubt, while clothing retailer Primark, owned by Associated British Foods, is having to put contingency plans in place so its manufacturing network is not affected. Hotel companies such as Marriott and Intercontinental Group are also likely to be affected.

SHOULD INVESTORS RUN FOR THE HILLS?

IF YOU sell now, you will be crystallising any potential losses. If you hold on for the long term though, the market should recover. It will require nerves of steel but try not to get caught up in the panic.

Emma Wall, of Hargreaves Lansdown, says: ‘Coronavirus is impacting markets and will continue to do so. That does not necessarily mean long-term investors should be overly concerned. Timing the market is notoriously difficult and even professionals get it wrong. Trading on news events can often lead to bad outcomes – panic selling often locks in losses and jumping back into the market is hard to do.’

If you are investing into an Isa or pension, with a long-term view of ten years of more, the best course is to stick with it, says Wall.

She adds: ‘Within four years of the global financial crisis in 2008, both the FTSE100 Index and the S&P 500 Index had shrugged off the losses.’

IS IT TIME TO SNAP UP SOME BARGAINS?

IT MIGHT be tempting to pick up some so-called bargains as shares fall in value – but with such a rollercoaster ride, it’s difficult to call the bottom of the market.

Professional traders live by their wits and need an iron nerve to play the markets. So retail investors should keep a cooler head and invest for the long term.

Jason Hollands, of wealth manager Tilney, says: ‘Sharp slides in markets ultimately reward long-term investors who are prepared to go against the herd and invest new money at lower stock prices than they may have paid just weeks earlier.’

He adds: ‘This does not mean investors should throw caution to the wind and aggressively pile in, as markets may worsen before improving, but there is a case for steadily feeding new cash in to the market over the coming weeks and months.’

If you haven’t been put off by recent market volatility, defensive stocks such as utilities, healthcare and drinks manufacturing could prove attractive – although they are not immune from share price corrections.

Reckitt Benckiser has said demand for its brands Dettol and Lysol has shot up, particularly in China, where it has outstripped supply. But the company’s shares still fell back.

Hollands remains bullish, saying: ‘UK equities continue to offer relatively better value than other developed markets and provide the support of attractive dividends. My top picks for UK equity funds include Liontrust Special Situations and Evenlode Income, both of which have strategies that avoid exposure to sectors and businesses that are highly sensitive to the economic cycle.

‘In the case of Liontrust Special Situations, this has historically proven a resilient performer in tough market conditions, a vindication of a focus on companies with robust earnings and high barriers to competition.’

Funds focused on capital preservation or investing in a range of assets can add diversification to an equity portfolio.

LET’S not beat around the bush. Stock markets are in freefall, and if the doomsters are to be believed, there could be worse to come if the spread of coronavirus hits pandemic territory, causing the global economy to grind to a halt.

Already, some leading economists such as Nouriel Roubini are talking about potential stock market corrections between 30 and 40 per cent. Although Roubini’s views are more pessimistic than most, they should not be discounted. After all, he was among a small group of commentators to correctly predict the 2008 financial crisis.

Scary? Absolutely. Roubini’s advice is for investors to hedge their portfolios against the possibility of a crash by putting money into cash and government bonds – ‘and if I am wrong and equities go up by 10 per cent instead, that’s also OK’.

Of course, just because this eminent economist was right before does not mean he will be correct again. There are other respected experts who believe that provided the epidemic is soon brought under control – and does not hit pandemic proportions – the world economy can bounce back quite quickly.

Irrespective of whose crystal ball you trust, these are obviously worrying times for readers with shares-based Isas and investments held inside self-invested personal pensions. But panicking out of investments now, especially if your investment horizons are more long than short term, is not the right way forward for most investors. My colleague Sarah Bridge provides some sound ‘Don’t panic’ advice in our Wealth section (page 71) and I urge you to read it.

Yes, it is prudent to look at whether your investments are sufficiently diversified – across all financial assets including the bonds and cash that Roubini likes. And as FundExpert’s Brian Dennehy advises, it can make sense for investors to set up ‘stop-losses’ on their portfolios so that if specific holdings fall in price to a certain level, they are automatically sold.

But if you are investing as most people do on a monthly basis, I suggest you carry on as normal, preferably across a range of shares and investments. The comfort of such a disciplined approach is that your contributions will buy more shares when prices dip. Experts call it ‘pound-cost averaging’. I call it commonsense. Finally, dividend income can alleviate some of the pain from sharp market falls. So ensure your investment portfolio has its slice of exposure to dividend friendly UK companies and investment trusts.

For some of the country’s most consistent dividendpaying investment vehicles, take a look at the ‘dividend heroes’ listed on the website of the Association of Investment Companies (trusts that have grown their annual dividends every year for the past 20 years). If you don’t have internet access, drop me a line and I will send you the list.

I will give the final word on markets to reader Edward Browne who, regular as clockwork (every Sunday morning, just before dawn), provides me with his view on issues of great Personal Finance importance. His advice on the current meltdown? ‘Sit tight and buy into falling markets.’ ‘Am I missing something here?’ he asks. ‘It all seems like mad panic.’

IT APPEARS fresh-faced Rishi Sunak, Chancellor of the Exchequer, has decided – for the time being at least – to put off further restrictions on the right of high earners to enjoy tax relief on their pension contributions. Hurrah, I say.

It also looks like he will resist the temptation to increase the tax applied to most insurance premiums. Another big hurrah.

So let’s hope that come the Budget on March 11, he will also announce proposals to boost the social care system so that people affected by the scourge of dementia are not forced to spend their life savings on care.

The marvellous Alzheimer’s Society is urging people to email their MP, asking them to impress upon Mr Sunak the importance of investing in the social care system. I’ve done it. You can too by following the link at alzheimers.org.uk. Hurrah if you do.