Coronavirus Drives Investors to Safety

Amidst the panic and scaremongering surrounding the ominous Coronavirus, there is an interesting paradox unfolding in the meeting rooms of the world’s most powerful people – how do they balance the protection of the population with the protection of the world economy?

It’s an extremely delicate balance and not one that many are likely to have experienced in their lifetimes. If they get this wrong, the consequences could be felt across the world for years to come; however, if they get it right many aren’t particularly likely to notice beyond a few months.

If governments prioritise the economy over public health, and the virus spreads across the world rapidly, then not only will the health consequences be dire, but the long-term economic results could be even worse than if the government had just acted.

On the other hand, if the government whip people into a panic over something which health experts are still learning about every day then they risk accelerating an already delicate situation which has seen markets across the world plunge sharply this week.

Events of this kind are difficult to write about by nature because they move so quickly that, something you write on Monday might be completely useless by the Friday, such is the fast-moving environment of these outbreaks.

It’s probably fair to say that this current outbreak isn’t likely to get much better in the coming months and could even have ramifications that go into next year.

Comparisons

There are those that have compared this outbreak of Corona Virus to the SARS outbreak of 2003 (SARS was a type of coronavirus itself), but with SARS only affecting 8,000 people and coronavirus exceeding 80,000 at the time of writing, comparisons seem to be pointless.

There have previously been episodes of diseases such as Swine Flu, Bird Flu and others, but this appears to be quite different in how quickly it has spread across the world, only being identified in January.

It’s not the intention to go into the medical specifics of the virus, but as things stand roughly 1-2% of patients infected with the virus die of the infection which puts severe pressure on the respiratory system. As of now the advice appears to be that the young and elderly are particularly at risk, with those with chest infections and other breathing conditions also at higher risk.

Given the spread of the virus it’s not inconceivable that it will continue, so the number of cases will increase at a similar rate for some weeks, although there are encouraging signs coming from China as the rate of new infections dropped sharply in recent days and those who had been re-infected by the virus were found to not be infectious to others.

Economic impact

There is, however, growing concern with regards to the world economy, which has been shocked into sharp drops this week - the Dow Jones seeing its largest ever one day drop, and the FTSE 100 seeing significant drops of up to 13% in a single day.

Analysts fear that a prolonged disruption could see drops at the level of the 2008 financial crisis, with similar recovery times if the effects of the virus aren’t curbed soon.

This has also driven investors into safe haven markets, with US Treasury bond yields dropping to record lows of just 1.3%, and gold prices rising sharply.

There is also some evidence coming in, via mortgage application and house sale data, that investors are now moving quickly into safe property markets in the US and UK. Certainly, with the short-term recovery of the market following the December UK election it would follow logically that many may feel the need to plough their money into property.

We may well see that as this situation develops, there is more and more inward investment into perceived ‘safer’ investment properties in cities like Manchester, Liverpool, Leeds and Sheffield where yields are relatively high, and demand is growing.

Going forward

It’s impossible to predict the next stage of the spread of this virus, as the World Health Organisation have been keen to stress that whilst the virus spreads there are still many measures being put in place to stem the spread.

Governments across the world are starting to ban large public gatherings, as countries like Italy and Iran struggle to cope with the spread within their own countries. Rugby matches and large sporting events are likely to be the next to be postponed and there is even a suggestion that the Tokyo summer Olympics could be suspended until the world has a grip of the virus.

However this does go, there’s a good chance that there will be significant disruption through the short-term.

If you are interested in investing in the UK, browse through property investment specialist Knight Knox’s range of buy-to-let properties here.