The Coronavirus and Other Oddball Risks
One of the reasons investing never gets boring is because it is an ever-changing, never-sleeping industry that presents new opportunities — and new risks — every day.
One of the most recent threats to the global business economy, and therefore investors, is the coronavirus and its far-reaching impact. China, home to much of the world’s manufacturing, has been hard hit by the epidemic. In its wake, travel has been one of the first casualties. This is bad news not just for tourists, but for the thousands of business representatives who fly in and out of the country each day. The virus outbreak among Chinese workers threatens business trade and supply chain production for markets throughout the world.1
The outbreak of coronavirus is but one example of the types of unexpected risks that can disrupt a wide variety of industries — and one example of why financial advisors recommend diversification. While all investments involve risks, there are additional risks associated with foreign investing, such as currency fluctuations, economic instability and political developments. Building an investment portfolio that includes uncorrelated asset classes can help defend against the wide range of both anticipated and unanticipated risks that investors face. We’re happy to review your portfolio to assess how much market risk you might be exposed to; just give us a call.
If you don’t think the coronavirus has impacted U.S. companies, think again. McDonald’s, Starbucks and H&M have all had to shutter stores in China. Disney closed its Shanghai and Hong Kong theme parks. The Marriott, Hyatt and Hilton hotel companies have suspended some operations in areas most affected by the virus. Carnival and Royal Caribbean Cruises have been forced to cancel scheduled voyages to help curb the spread from one country to another.2
The problem isn’t isolated to retail stores, either. Technology companies like Apple and Google have restricted employee travel either completely or only for “business-critical situations.” Additionally, General Motors, Honda and Nissan have suspended auto production.3
According to Wilbur Ross, the U.S. Secretary of Commerce, there is perhaps a silver lining to the crisis. In a recent interview, he intimated that if U.S. manufacturers returned many of their offshore operations to America, they could better control such risks.4
However, risk is risk — and it takes on many different guises, even domestically. Some investment analysts warn that political campaigns heading toward the November elections may be a primary source of market volatility throughout the year. The two major political parties appear as divided as ever with policies that offer both positive and negative components. Regardless of party affiliation, both offer platforms that seem likely to increase spending and expand our nation’s debt.
This dynamic is likely to stretch U.S. Treasury valuations even further, while the relationship between the Federal Reserve and the investment markets may continue to be strained. While the Fed altered monetary policy in 2019 to accommodate markets, there could be less wiggle room now to combat any further risks to the economy such as rising asset price inflation.5
And then there’s the problem of trade wars promulgated by aggressive 140-character tweets — an approach that tends to pain Republicans and Democrats alike, not to mention Wall Street.6
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1 Franklin Templeton. Jan. 24, 2020. “Monitoring China’s Outbreak and Other Potential Market Shocks.” https://www.franklintempleton.ca/en-ca/investor/article?contentPath=html/ftthinks/common/blogs/monitoring-chinas-outbreak-and-other-potential-market-shocks.html. Accessed Feb. 5, 2020.
2 Sergei Klebnikov. Forbes. Jan. 28, 2020. “Coronavirus Hits Big Business: These Companies Are Cutting Operations And Restricting Travel To China As Disease Spreads. https://www.forbes.com/sites/sergeiklebnikov/2020/01/28/coronavirus-hits-big-business-these-companies-are-cutting-operations-and-restricting-travel-to-china-as-disease-spreads/#509d69381264. Accessed Feb. 5, 2020.
3 Megan Cerullo. CBS News. Jan. 30, 2020. “China coronavirus causing chaos for U.S. companies.” https://www.cbsnews.com/news/coronavirus-brings-business-operations-in-china-to-standstill/. Accessed Feb. 5, 2020.
4 BBC News. Jan. 31, 2020. “Wilbur Ross says Coronavirus could boost US jobs.” https://www.bbc.com/news/business-51276323. Accessed Feb. 5, 2020.
5 Sonal Desai. Franklin Templeton. Jan. 14, 2020. “On My Mind: Will the US Survive the Politics in 2020?” https://www.franklintempletonnordic.com/investor/article?contentPath=html/ftthinks/common/cio-views/on-my-mind-will-the-us-economy-survive-the-politics-in-2020.html. Accessed Feb. 5, 2020.
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