As the markets panic over the coronavirus outbreak, it is important to understand how to keep your money safe and come out on top at the other end.
We live in unprecedented times. It is difficult to stay calm and level-headed at the moment amidst the uncertainty that the COVID-19 outbreak has created globally. No one can predict what will happen in three months or six months or a year from now. Most of us are taking things in stride day-by-day trying our best to cope and hoping that governments, the medical fraternity and our fellow people make the right decisions so we can all emerge from this in a relatively good place.
Certainly, the prolonged impact of the outbreak brings our financial situation to the fore. Questions will arise about our income security, what effect it may have on the wealth we have built, how will it impact our future retirement plans, and so on and so forth.
We understand that it can be difficult to make informed financial decisions that are not driven by fear or emotion amidst the volatility and dramatic sell-offs in the markets which can challenge your commitments to long-term investment plans.
While there is no fool-proof method to navigate the markets in times like this, we believe there are still actions you can take that can make a difference in putting yourself in a safer, if not better, financial position at the other end as we all try to get through this challenging period.
5 TIPS TO HANDLE MARKET VOLATILITY
While news flow such as what we have experienced with the COVID-19 outbreak – as well as other instances like Brexit, trade wars and Middle East tensions – can affect short-term market sentiment and lead to loss in asset valuations, share prices should ultimately be driven by fundamentals over the long run.1 Therefore, you should avoid panic selling as an investor during volatile periods to avoid missing out on any potential market recovery.1
Based on the performance of global equities represented by the MSCI AC World Total Return Index over different time frames between 1999 and 2019 (see Fig. 3):
- You can see that the longer the investment time frame, the less likely of a negative return.1
- The 1-year bar graph on the left shows that the performance of the index over any 1-year period between 1999 and 2019 ranged between -51% and 79%. However, for any 10-year period, investment performance of the index ranged between -23% and 225%.1
- Therefore, the longer you stay invested, the more likely you are to enjoy positive returns.1
Market downturns may create opportunities
- Price to book ratio (P/B Ratio) is a ratio used to compare a stock’s market value to its book value – the company's assets minus liabilities.1 It is calculated by dividing the price of the stock by its book value per share.1 A lower P/B ratio could mean that the stock is undervalued.1
- The chart shows that high levels of selling during economic crises drives valuations down, which can provide buying opportunities.1
- Sometimes, company valuations are at their lowest during these times because everyone seems to have a negative view.1
- Opportunities can arise when market sentiment is the lowest – when all the news is negative.1 For example, between November 2008 to March 2009, valuations reached the lowest point over this period at 1.28x.1 This was followed by a lengthy period of positive returns.1
So, take a moment and a deep breath. There is light at the end of the tunnel if you make the right decisions now, and act on facts rather than on fear. HSBC Malaysia offers a wide selection of diversified global portfolios and Asia managed solutions that can form part of your investment strategy to tackle these volatile times. Your Relationship Manager and our specialists are here to assist so you can make financial and investment decisions that will put you in a better position.
HSBC Global Asset Management viewpoint amidst volatility
Things have been changing daily and markets have been fluid. As HSBC Global Asset Management followed the developments, here were their key views as things continue to unfold…
- Global risk assets have sold off sharply and volatility has surged amid the global outbreak of COVID-19.2 The current environment suggests that a global recession is now the most probable scenario.2 The only question is for how long and how deep.2
- In response, the US Federal Reserve has cut federal fund rates by 100bp to 0.25% and committed to at least US$700 billion of asset purchases in the months ahead.3 The European Central Bank and Bank of England have also made similar moves, delivering comprehensive easing packages in the face of the health crisis we face.3
- HSBC Global Asset Management believes it makes sense to adopt a more neutral tactical view in the one to three-month period on developed market equities in such a highly uncertain and volatile environment.2 However, they maintain a strategically pro-risk stance in the 6+ months outlook in the context of hugely improved relative valuations for risky assets.2
- Be prudent and practice greater selectivity in risk assets that you hold as an investor.4 HSBC Global Asset Management sees greater potential for policy stimulus in the US, China and many Emerging Markets (EM) and believe it makes sense to allocate a higher weight to EM and US equities relative to the Eurozone and Japan.4 With the Eurozone economy facing significant challenges from the outbreak and policy makers facing some constraints to prompt action, HSBC Global Asset Management is cautious on exposure to the eurozone.5
HSBC Diversified Portfolios
1. HSBC Global Wealth Insights, 5 Tips to handle (persistent) market volatility, 14 February 2020.
2. HSBC Global Asset Management, Investment event: Adapting to a volatile environment, 16 March 2020.
3. HSBC Global Asset Management, Investment event: Federal Reserve goes all out, 16 March 2020.
4. HSBC Global Asset Management, Investment event: Uncertainty breeds volatility, 9 March 2020.
5. HSBC Global Asset Management, Investment event: ECB – Focusing on liquidity, 12 March 2020.