Investors should try to avoid a knee-jerk reaction around coronavirus, which is currently the number one threat to financial markets, as the fears associated with the potentially deadly Sars-like virus might trigger major sell-offs, according to chief executive and founder of the financial advisory group, DeVere Group, Nigel Green.
The data showed that on Monday all the major indices, including the composite European Stoxx and London’s FTSE, dropped by 1.7% and 1.6%, respectively. Also, this was followed by more dramatic overnight decline in Asia, with the Shanghai Composite, the Hong Kong Hang Seng, and Japan’s Nikkei, dropped by 2.7%, 1.1% and 2%, respectively.
“But whilst this health crisis will inevitably hit some sectors, such as travel and retail, most investors who have a properly diversified portfolio should avoid knee-jerk reactions. History teaches us that most issues of this kind have a short-term impact on stock markets,” Green said.
Therefore, according to Green, investors should monitor situation with their financial adviser and “sit tight at present”.
“But if it is still escalating next week, with much higher casualty rates, a more defensive approach might be necessary,” he added.
This should also serve as a wake-up call to all investors to ensure their portfolio was well-diversified across asset classes, regions, sectors, even currencies.
“This is the best way to mitigate risks and the best way to be well-placed to take advantage of the opportunities when they occur,” Green said.
“Stock markets tend to bottom with the peak in new cases during a public health issue of this kind, before rebounding within months.
“This is a worrying and serious situation and investors must be vigilant. They should remain properly diversified and remain in the market.”