Coronavirus uncertainty and the need for discipline
28 February 2020 | Markets and Economy
Commentary by Greg Davis, Vanguard chief investment officer
Vanguard has been talking about uncertainty for some time now. In fact, it was the theme of our economic and market outlook for 2020, where we put forth our view that perhaps the markets have become too optimistic about the prospects for growth in China, the United States and elsewhere.
And now comes COVID-19, also known as the coronavirus. News this week has suggested a noteworthy spread of the disease beyond China, where it originated, to South Korea, Italy, Iran and other countries.
We’re saddened by the loss and suffering that so many people have already endured.
We also understand investors’ concerns about the potential effects of the coronavirus outbreak on China’s and the global economy, which Vanguard economists Qian Wang and Adam Schickling discuss in a web article published today. They offer the caveat that their analysis assumes the virus would primarily remain contained in mainland China.
Vanguard has a stellar global team of economists. But they’re not epidemiologists. Predicting the course of a disease as novel as the coronavirus is sure to challenge even the most accomplished medical scientists.
That said, this is what we do know, from an economic and markets standpoint:
- The coronavirus has introduced uncertainty into the global economy to a degree greater than we had envisioned when we put together our economic and market outlook for 2020.
- Investors frequently respond cautiously to heightened uncertainty, selling out of riskier assets in favour of safe havens.
- Markets have shown over their history that volatility is more the rule than the exception, and that events that prompt sell-offs tend to recede into the background over the longer term.
With this knowledge, we encourage investors, as we have for ages, to hold a diversified portfolio of assets, to remain disciplined by avoiding impulsive decisions based on fear and uncertainty and to stay focused on their long-term goals and their plan for achieving them.
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