In the financial world, the effects have been just as profound, with huge falls in stock markets not seen since the global financial crisis more than a decade ago. Global losses from equity markets alone in the last six days of trading to the end of February totalled almost £3 trillion. Needless to say, the implications are already being felt: Hymans Robertson analysis estimates that the same period of market turmoil added almost £100 billion to the UK’s defined benefit deficit.
Of course, the media has been critical to consumers’ awareness of the coronavirus, with traditional press outlets focusing extensively on the prospect of a pandemic, sentiments which have been replicated and arguably exacerbated by social media channels.
It is obviously too early to draw any conclusions at this stage and only time will tell as to the extent to which the coronavirus threat has been under- or over-exaggerated. What we can identify with complete certainty, however, is that the heightened concern among the public illustrates the power that the media retains to influence sentiment and, in particular, the extent to which social media can affect and guide consumer behaviour.
For the financial world, this landscape raises a number of substantial problems that investment businesses will need to think about and work hard to overcome.
Chief amongst these is the extent to which fund managers can address, respond and, preferably, counteract short-term thinking from asset owners brought on by coronavirus fears. The temptation to react to any “black swan” event can be overwhelming – as illustrated by recent market selloffs, and a somewhat panicked interest rate cut from the Federal Reserve – but this comes the danger of resulting “knee-jerk” reactions that might may make sense in the immediate term but are far less beneficial (and possibly detrimental) in the future.
To date, the response from the asset management world has, despite the substantial current challenges faced, been largely constructive – investment teams have been proactive in communicating their views, assessing the investment landscape and explaining portfolio positioning in order to limit losses resulting from recent market movements.
The challenge, of course, will be to maintain this in an environment where asset owners will likely be much more short-term in their thinking over the coming months as they seek to minimise downside exposure to further market movements and, likely, greater volatility. Clear, concise articulation of individual investment approaches, their ability to mitigate against risk and the merits of “seeing the wood for the trees” will therefore be critical for investment businesses, particularly those employing actively managed strategies, to at a minimum maintain their current position and standing.