At the time when many investors are pondering one question of whether coronavirus will have lasting implications or their portfolio, Stanford Brown says that they should remember that a portfolio’s timeframe is for years and decades, rather than weeks.
However, due to a large amount of uncertainty regarding the potential impact of coronavirus, some investors are acting on the assumption that a worst-case scenario is likely.
“We don’t aim to time markets perfectly. As we can see below, failing to time the markets correctly is a costly proposition,” Stanford Brown’s Jonathan Hoyle, chief executive, and investment analyst Nicholas Stotz, said.
“At this stage, we do not believe that drastic changes to portfolios is required.
“We continue to monitor markets and portfolios daily, and are ready to adjust portfolios when we see risk-return prospects deteriorating.”
They also said that the good news for investors was that the world’s governments were ‘hell-bent on avoiding recession’, and Scott Morrison had ruled out fiscal stimulus to prop up the local economy, only to quickly change tack two days later as he floated the option of stimulus to combat a global pandemic.
“This time last week, traders seemed to be shrugging collectively at the coronavirus. China’s efforts to contain the outbreak from the Hubei province had largely been successful – the coronavirus was going to remain an epidemic, not a pandemic,” Stanford Brown said.
According to Amundi Asset Management, the main risk now was the unwinding of recent market complacency (risk assets at historical highs in February) and the reaction of “animal spirits” that could turn into overreaction.
In the short-term, some profit-taking, risk reduction and increases in hedging were warranted in order to protect investors’ portfolios, the firm said.
“Our main convictions at the moment are in the credit space – i.e. investment-grade Europe – and we also have a positive view on duration in US Treasuries for hedging purposes. From a cross asset perspective, we have become more cautious on equities (European and US), and we have moved to a neutral stance on emerging market equity.
“From a cross asset perspective, we have become more cautious on equities (European and US), and we have moved to a neutral stance on emerging market equity.
“Beyond this tactical view, we believe that the coronavirus can provide opportunities to implement investment convictions that we have identified in our central scenario, exploiting entry points and market dislocations,” Amundi AM said.
At the same time, emerging market bonds largely withstood the volatility brought about by the spread of the novel coronavirus, resisting the sell-off that equities have suffered as investors flee to the safety of US Treasuries, according to VanEck.
“Overall, emerging markets bonds have shown they have all-weather characteristics,” Eric Fine, VanEck portfolio manager for the Emerging Markets Fixed Income Strategy, said
“Many have withstood the volatility associated with the coronavirus. US dollar-denominated bonds have been supported by declining US Treasury yields, which is often the case in the post-quantitative easing era.
“But now, in addition, high-rated local-currency bonds have been very strong, as they are increasingly seen as having defensive characteristics.”
