As it happens, in the financial world the hysteria appears to have been largely contained, with markets regaining lost ground towards the middle of the week on suggestions that China appeared to have what President Xi has rather unnervingly dubbed the “devil” disease under control. The extent to which travel has been curtailed to do so is, nevertheless, still rather alarming. And as we discuss in this week's News Spotlight, the restrictions put in place could have material effect on the short-term prospects of certain industries, airlines and luxury goods companies, in particular, whose recent fortunes have been closely tied to China’s economic boom.
But many have quickly remembered that in the grand sweep of investing history the Four Horsemen have rarely, if ever, inflicted any particularly long-lasting savagery on financial markets. I say that, of course, without any expertise in virology or confidence that the situation in China might not worsen again, but taking drastic portfolio action on the basis of what-ifs has seldom proved a successful long-term investment strategy.
Indeed, it seems more likely that leaving the European Union will ultimately have a more meaningful impact on the UK, its economy and its markets over the course of 2020 and beyond than the Wuhan virus. Although 31 January is officially Brexit day, there remains the thorny issue of securing a trade deal by the end of the transition period on 31 December. Whatever claims former trade secretary Liam Fox has made that this will be “one of the easiest [trade deals] in human history”, it probably won’t. As Philip Ryland explores, such is the extent of the UK’s trade with EU nations that it would appear to hold little leverage but is nevertheless likely to be asking for major concessions. That means no-deal – the threat that has previously weighed so heavily on UK shares – remains a possibility.
Again, though, we are dealing with what-ifs. And while ‘what if?’ is a question investors should always be asking, it is worth remembering that concentrated bets on the binary possibilities often thrown up by such questions can also be a dangerous game – or asking ‘what if my investment turns bad?’ and doing nothing as a result, a prevalent and paralysing attitude towards investing in this country. Fortunately, there is a remedy for all the what-ifs in the world, even ones like the coronavirus of Brexit. And that, of course, is diversification.
