Coronavirus-triggered market correction could hit complacent investors

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Investors remain complacent about an imminent coronavirus-triggered market correction of up to 10%, the CEO of one of the world’s largest independent financial advisory organisations has warned, as global equities registered losses on Monday following a surge in cases in Italy, Iran and South Korea over the weekend.

The warning from deVere Group’s chief executive and founder, Nigel Green, came after financial markets retreated on Monday as they reacted to the coronavirus headlines over the weekend, with the first cases also confirmed in Kuwait, Bahrain and Afghanistan.

“Indeed, stocks keep on reaching record highs, but it is likely that they will quickly rebound, as they have consistently done in recent weeks,” Green said.

This is because many investors remain complacent about the far-reaching impact of coronavirus, which is continuing to spread – and a faster pace.

“This will inevitably hit financial markets and investors’ complacency leaves many wide open to nasty surprises,” he said, adding that major global companies, especially those with heavy exposure to the Chinese economy, are lowering profit guidances due to the outbreak.

“This will have a knock-on effect across international supply chains and throughout economies.  But is the message being heard by investors?

“In addition, coronavirus has struck at a time when major economies, including Japan, Germany, India and Hong Kong are facing a downturn due to other factors such as the U.S.-China trade dispute and political protestors, which could hit the world economy.”

The deVere CEO continued to say that, “until such time as governments pump liquidity into the markets and coronavirus cases peak, a near-term correction – of up to 10% – is increasingly likely.

“We are hoping for a V-shaped recovery, but our current view is that it will be U-shaped. Against this backdrop and with the ongoing uncertainty over the direction of stocks and other risk assets, multi-asset portfolios might be favoured by global investors, given that they offer diversification of risk as well as of return.”

Green concluded with a warning: “Markets are at high valuations and the impact of the coronavirus on profits appears largely underestimated. In general terms, stocks have hardly been deterred by the coronavirus outbreak.  This complacency is concerning.

“Investors need to ensure that their portfolios are coronavirus-proofed as cases jump and a market correction looks more likely.”