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We thought a further update might be helpful regarding the volatility in the Stock Markets, to take into account the events of last week.

As has been seen over the past month, uncertainty has a swift impact on the global stock market. The Coronavirus was declared a pandemic last week, and that, coupled with the significant issues it has been causing in Italy, has been driving markets down.

The markets reacted particularly badly to the situation in Italy, mainly because Italy is a developed country and this was an unexpected outcome. Some portfolios experienced drops in excess of 10%. 

The World is wondering where the next outbreak will occur and if these outbreaks will be contained, or multiply to the same or lesser degree than Italy.  It is no surprise that World travel has reduced dramatically.  As a direct result of Coronavirus, global demand for oil, especially in Asia, has dropped significantly.  America is banning all flights from 26 European countries for 30 days, which will further reduce oil demand, especially if this ban is extended.

South Korea currently appears to be the role model for the World in controlling the Coronavirus.  Cases initially rose, like the rest of the countries affected, then reduced again quickly, giving optimism for everyone until a vaccine is available and distributed.

On March the 6th, Russia rejected an agreement with OPEC to cuts in oil supplies to bolster prices.  Saudi Arabia reacted by slashing their export oil prices and this will impact Venezuela, Iran and some American oil companies.  Brent global oil price immediately fell by around 25%.  The actions of Russia and Saudi Arabia added further uncertainty to a market already affected by reduced oil demand due to the Coronavirus.  Long term, the World demand for oil is expected to reduce dramatically, with moves to renewable energy and electric cars etc.  Selling cut price oil is unlikely to create long term business by increasing demand.

Last week, shares linked to entertainment fell further, including pub chains, cinema and restaurant chains.  Home delivery linked shares rose further, these had already been rising before Coronavirus as there had been a trend away from retail shops to online shopping.  Coronavirus is expected to accelerate this move as more people utilise this service.  Consumers tend to form habits, so a percentage of new customers may remain with home delivery after the pandemic has gone.    

CHN’s investment manager believes that the critical question for markets will be, at what stage will investors feel the situation is being brought under control.  In the case of Coronavirus, this will be primarily from a medical perspective, but from an economic perspective it will be when the consequences of both the virus and fall in price of oil can be fully clarified. 

We believe in diversification; in these uncertain and fluctuating markets, never can the benefits of this strategy be more clearly demonstrated.  While the CHN CIP diversified portfolios have fallen in value, as many investments have done in these difficult market conditions, the funds placed in these portfolios to reduce risk by our investment manager are having an effect.  These funds have reduced and dampened the impact of these falling markets and can clearly be seen as doing their job.  For instance, property and strategic bond funds, included in the portfolios, both assets that previously underperformed, bolstered some of the recent equity drops and reduced losses.      

Should you have any concerns regarding any of the above, please do not hesitate to contact your Financial Consultant, who will be only too willing to assist you.