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Video: Should investors be concerned about coronavirus?

Goldman Sachs market strategist James Ashley looks at the impact of coronavirus on global economic growth, and explains how investors should try to ignore the market noise and focus on the long term.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

  • It is very difficult to predict with accuracy how long the coronavirus will last and how deep the impact will be on global GDP
  • Investors should focus on their own long-term investment goals rather than daily market noise

Read transcript

Emma Wall, Head of Investment Analysis at Hargreaves Lansdown speaks directly to camera, and then begins an interview.

Emma: Hello I'm Emma Wall and joining me today to talk about Coronavirus is James Ashley from Goldman Sachs Asset Management. Hello James.

James: Good morning.

Emma: So there are a lot of predictions out there at the moment on how Coronavirus will impact Chinese GDP and in turn global growth for 2020, and you have a rather interesting view and that is we just don't know.

James: We don't know with any specificity - we can't be too precise about this. I think there's not a single person in the world, forget economists or strategists, a public health official the best worlds the epidemiologists have no idea about how long this will go on for, how far it's spread what the infection rates are, so for an economist to say with great precision it will take point X off GDP or for a strategist to say the market will correct by Y percent before it recovers, we think is just spurious accuracy, now we know something, we know that it will do damage to Chinese and therefore global growth and some of that will be permanent - activity that would have been undertaken in January or perhaps February will not be undertaken at all so we know it's a negative shock but we can't quantify it at this stage.

Emma: And then looking at your predictions, coronavirus aside, interestingly do you think that China is slowing down and so therefore you're saying that we should asset allocate based on the knowns rather than the unknowns?

James: You shouldn't neglect the unknowns, but we can talk about that in just one second, but if you look at Chinese trend growth the underlying rate of growth in China in our view on a long-term basis is around five and a quarter percent so before coronavirus came along we were expecting growth this year to slow somewhere just below 6% so over a multi-year horizon we were expecting an extended slowdown now what coronavirus does is clearly create a significant downside risk for this year but the direction of travel is towards a slowing Chinese economy anyway for a number of reasons most obvious of which is demographics. The unknown factors are something that not just for China but globally we should be taking into account we are in a world right now where there's a heightened level of geopolitical political uncertainty macro uncertainty central bank uncertainty; we can't neglect those but we need to be mindful about what weights we assign to them and how we position portfolios accordingly, so we're not saying ignore them, but we're saying keep an eye on the fundamentals - things like coronavirus are they occurring at a point in time where the macro backdrop is healthy or where the macro backdrop is frail and somewhat fragile and our view specifically on the coronavirus story is that even with that underlying slowdown in China the global economy for this year looks relatively healthy we're expecting most of the world's major economies outside of China to be accelerating so our message is this is obviously a deeply concerning development but it comes at a point in time where the global economy has actually just started to show a bit of momentum a bit of a pickup so our view for this year is that you should still be allocated towards risk assets they are still thinking of this as an opportunity where you should see the economic fundamentals as dominating these kind of, hopefully short-term, shocks.

Emma: The thing is as we all know that markets don't always respond purely to fundamentals they respond to sentiment and there is quite a lot of fear there on a personal level on our health level and also on a market level so how do you weather that uncertainty and that fear.

James: Well that fear is completely understandable, certaintly on the personal level, you know huge sympathies and concerns for anybody who's had any exposure or who's any way connected with what's going on at the moment. In terms of how we weather it as investors we say well look, stick with the fundamentals for a start, so think about the strategic long-term perspective and our view there, as I've already just shared with you, is that the global economy is in reasonable shape and that there's no sign of an imminent recession so you should be relatively constructive but equally at the same time we do know there's going to be a shock and we know that whatever the magnitude of the shock is which I've already argued we can't say with great precision but there will be ripple effects this isn't just China so we look at well which economies are going to be most likely affected, where are the strongest linkages and you see straight away, South Korea, Hong Kong, Malaysia - economies typically in Southeast Asia have got the greatest relationships in terms of trade or financing flows. So then we say well look we don't want to reallocate on a strategic basis if we have this fundamental positive view then we remain overweight equities relative to rates but within each of those buckets within equities or within rates perhaps we start to think about some other tactical tilts, if we think for example that Asian currencies are going to be affected that we're going to see lower central bank rates then that tells you something about what you should be doing in the fixed income bucket, equally if we believe that certain Asian equity markets will be affected then that tells you about the tactical tilts that you have on, so it's about making some tactical adjustments, but no radical long-term strategic adjustments to portfolio's at this stage.

Emma: And if tactical asset allocation in the short-term is too much for you I suppose it's just about focusing on long-term fundamentals?

James: Absolutely I think that's the key message at all points in time whether it's related to coronavirus or in a more stable state of the world, the message is don't be too tactical don't over complicate things so have your strategic view and that's not as a message of set-and-forget don't have a strategic view and just walk away, it's appropriate to make some tactical adjustments but don't be too tactical about this be mindful about the long term trajectory and stick with that long term view.

Emma: James thank you very much.

James: Thank you.

Emma speaks directly to camera.

Emma: Thank you for watching.

This video is not personal advice or a recommendation to invest. If you are unsure about the suitability of an investment please seek advice. Investments can fall as well as rise in value and you could get back less than you invest.

Any comment on individual companies is not a recommendation to invest.

The views in this video are those of James Ashley and may not be shared by Hargreaves Lansdown.

Views correct as at 06 February 2020.

The views in this video are those of James Ashley and may not be shared by Hargreaves Lansdown.

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    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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