Presently, the topic that is dominating every conversation today is Coronavirus and its impact on one’s health, the stock markets and wealth.
Like every other time, i.e. whenever reports of any pandemic outbreak came into light, the impact is high across the financial markets, with major world indices witnessing sharp corrections in the last few weeks.
| One Month Change in Global Indices | ||||
| Country | Indices | As on 11th Feb 2020 | As on 12th March 2020 | Gain/Loss (%) |
| United States | Dow Jones Ind | 29276.34 | 23533.22 | -19.6 |
| United States | S&P 500 | 3357.75 | 2741.38 | -18.4 |
| United States | NASDAQ | 9638.94 | 7952.05 | -17.5 |
| United Kingdom | FTSE 100 | 7499.44 | 5876.52 | -21.6 |
| Germany | DAX | 13627.84 | 10438.68 | -23.4 |
| Hong Kong | HANG SENG | 27241.34 | 24309.07 | -10.8 |
| Japan | NIKKEI 225 | 23685.98 | 18559.63 | -21.6 |
| India | SENSEX | 41216.14 | 32778.14 | –20.5 |
These corrections have created massive panic among investors, with many of them selling significant portions of their equity investments to buy fixed income instruments like fixed deposits. In contrast, another section of investors are in the dilemma of whether to buy or not at such discounted prices.
How the Market Reacted during Past Pandemics?
| Past Pandemics and Sensex | ||||
| Estimated Period of Outbreak | Virus Outbreak | Returns During Outbreak | 1 Year Return Post Outbreak | 3 years Post Outbreak Returns |
| Jan to March 2003 | SARS | -10.07% | 77.68% | 269.99% |
| Jan to August 2004 | AVIAN Influenza | -12.23% | 47.42% | 195.04% |
| December 2013 to Feb 2014 | Ebola | 1.06% | 44.44% | 36.09% |
| Nov 2015 to Feb 2016 | Zika | -13.39% | 13.36% | 55.93% |
| 1 Jan 2015 to May 2015 | Swine Flu | -6.91% | -4.24% | 26.83% |
Similar to Coronavirus, outbreak of SARS had its impact on global as well as Indian stock markets. Sensex fell by 10 percent in three months. But, one year from then, it generated an absolute return of more than 77 percent. This means if you would have invested Rs 1 lakh in the index early in January 2003, when fears of SARS hovered over the markets, within a year, the same investment would have grown to become Rs 1,77,000.
How to handle client’s emotions during this time.
- Urge to redeem funds:Most of the times clients have an urge to redeem funds and re-enter at the right time. There is a saying that more money is lost in waiting for corrections than corrections themselves, so its better for your clients to be in the market than exiting now and entering later.
- Urge to invest now:This is a good time to add more to your client’s existing investments if the asset allocations allows it. Distributors can use this time to bring the mix of equity-debt to the desired allocation.
With the examples of past scenarios and the returns generated post every-outbreak, take this time to educate your clients of the market volatility and stop your clients urge to redeem in a panic. Bottom line is ‘This too shall pass’.
*Source: With Inputs from ET
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