Investors should avoid any knee-jerk reaction to coronavirus

As it stands, coronavirus is the biggest threat to financial markets.

With the death toll rising to 106, the number of confirmed cases of the Sars-like virus has reached more than 4,500.

On Monday, the composite European Stoxx 600 fell 1.7% at the open, London’s FTSE 100 declined 1.6%, while Germany’s Dax fell 1.7%. Elsewhere in Asia, the Shanghai Composite fell 2.7%, the Hong Kong Hang Seng lost 1.1%, and Japan’s Nikkei dropped 2%.

As I was quoted by The New York Times, USA Today, Newsmax and The Express, amongst other media, the coronavirus is the number one threat to financial markets as investors around the world are jittery due to the uncertainty generated.

However, whilst this health crisis will undoubtedly impact certain sectors, particularly travel and retail, the majority of investors who keep a sufficiently diversified portfolio should avoid making any knee-jerk reactions.

After all, history has taught us that such issues have a short-term effect on stock markets.

Investors would be wise to keep an eye on the situation with their financial adviser, and for now, sit tight. Nevertheless, should the health crisis continue to intensify going into next week, with more casualties, investors may require a more defensive approach.

Of course, the cost and effort of taking such a different approach means investors should not make any rash decisions. Further evidence is required to determine whether the coronavirus does pose a medium to long-term risk to China and the global economy.

However, the situation should certainly act as a wake-up call for investors to make sure their portfolio is well diversified across asset classes, regions, sectors, even currencies.

This is the optimal way to sidestep risks and be in the best of positions to make the most of the opportunities when they arise.

Stock markets usually bottom with a spike in new cases during a health crisis such as coronavirus, before rallying within a matter of months.

Nonetheless, this is clearly a very concerning, grave situation, which must be monitored by investors. They must remain properly diversified and stay in the market.

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