The Coronavirus and Other Oddball Risks
One of the reasons investing never gets boring is because it
is an ever-changing, never-sleeping industry that presents new opportunities — and
new risks — every day.
One of the most recent threats to the global business
economy, and therefore investors, is the coronavirus and its far-reaching
impact. China, home to much of the world’s manufacturing, has been hard hit by
the epidemic. In its wake, travel has been one of the first casualties. This is
bad news not just for tourists, but for the thousands of business
representatives who fly in and out of the country each day. The virus outbreak
among Chinese workers threatens business trade and supply chain production for
markets throughout the world.1
The outbreak of coronavirus is but one example of the types
of unexpected risks that can disrupt a wide variety of industries — and one
example of why financial advisors recommend diversification. While all
investments involve risks, there are additional risks associated with foreign
investing, such as currency fluctuations, economic instability and political
developments. Building an investment portfolio that includes uncorrelated asset
classes can help defend against the wide range of both anticipated and
unanticipated risks that investors face. We’re happy to review your portfolio
to assess how much market risk you might be exposed to; just give us a call.
If you don’t think the coronavirus has impacted U.S.
companies, think again. McDonald’s, Starbucks and H&M have all had to
shutter stores in China. Disney closed its Shanghai and Hong Kong theme parks.
The Marriott, Hyatt and Hilton hotel companies have suspended some operations
in areas most affected by the virus. Carnival and Royal Caribbean Cruises have
been forced to cancel scheduled voyages to help curb the spread from one
country to another.2
The problem isn’t isolated to retail stores, either. Technology
companies like Apple and Google have restricted employee travel either
completely or only for “business-critical situations.” Additionally, General
Motors, Honda and Nissan have suspended auto production.3
According to Wilbur Ross, the U.S. Secretary of Commerce,
there is perhaps a silver lining to the crisis. In a recent interview, he
intimated that if U.S. manufacturers returned many of their offshore operations
to America, they could better control such risks.4
However, risk is risk — and it takes on many different
guises, even domestically. Some investment analysts warn that political
campaigns heading toward the November elections may be a primary source of
market volatility throughout the year. The two major political parties appear
as divided as ever with policies that offer both positive and negative
components. Regardless of party affiliation, both offer platforms that seem
likely to increase spending and expand our nation’s debt.
This dynamic is likely to stretch U.S. Treasury valuations
even further, while the relationship between the Federal Reserve and the
investment markets may continue to be strained. While the Fed altered monetary
policy in 2019 to accommodate markets, there could be less wiggle room now to
combat any further risks to the economy such as rising asset price inflation.5
And then there’s the problem of trade wars promulgated by aggressive
140-character tweets — an approach that tends to pain Republicans and Democrats
alike, not to mention Wall Street.6
Content prepared by Kara Stefan
1 Franklin Templeton. Jan. 24, 2020. “Monitoring
China’s Outbreak and Other Potential Market Shocks.” https://www.franklintempleton.ca/en-ca/investor/article?contentPath=html/ftthinks/common/blogs/monitoring-chinas-outbreak-and-other-potential-market-shocks.html. Accessed Feb. 5, 2020.
2 Sergei Klebnikov. Forbes. Jan. 28, 2020. “Coronavirus
Hits Big Business: These Companies Are Cutting Operations And Restricting
Travel To China As Disease Spreads. https://www.forbes.com/sites/sergeiklebnikov/2020/01/28/coronavirus-hits-big-business-these-companies-are-cutting-operations-and-restricting-travel-to-china-as-disease-spreads/#509d69381264. Accessed Feb. 5, 2020.
3 Megan Cerullo. CBS News. Jan. 30, 2020. “China
coronavirus causing chaos for U.S. companies.” https://www.cbsnews.com/news/coronavirus-brings-business-operations-in-china-to-standstill/. Accessed Feb. 5, 2020.
4 BBC News. Jan. 31, 2020. “Wilbur Ross says
Coronavirus could boost US jobs.” https://www.bbc.com/news/business-51276323. Accessed Feb. 5, 2020.
5 Sonal Desai. Franklin Templeton. Jan. 14, 2020. “On
My Mind: Will the US Survive the Politics in 2020?” https://www.franklintempletonnordic.com/investor/article?contentPath=html/ftthinks/common/cio-views/on-my-mind-will-the-us-economy-survive-the-politics-in-2020.html. Accessed Feb. 5, 2020.
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