The coronavirus has been an inevitable topic in the last few weeks. Although, relatively, it has not made the same number of victims as the common flu, the stock markets have plunged worldwide.
Irrespective of the breakout of the coronavirus, due to the favourable 2019 results, a correction of the stock market was to be expected. The dramatic reactions of several countries alongside the heavy measures implemented for businesses have, however, impacted the international economy and stock markets significantly. Some are comparing the situation to the financial crisis of 2008; others only speak of short term consequences. After all, the situation has to be put into perspective, and a volatile stock market does not necessarily predict a bad future. Nonetheless, recent plummeting of oil prices are also causing a 20% decrease in stocks of oil businesses.
If you have opted for a Branch 23 product in your group insurance in the past, then you know markets are volatile. According to your investment profile, you have chosen how risk proof your investments are. It is important to look at your Branch 23 investments in the long run as well as to think about the opportunities that could arise due to this decrease. Notwithstanding, prices and returns have significantly decreased in only a few days.
2019 was a good year for stock markets, which did not go unnoticed by clients who invested in Branch 23 products. The current coronavirus crisis is causing a sharp price decline, and it is expected for them to continue to decrease. Fear and reactions for the virus alongside the decreasing stock market affect businesses, perhaps with long term repercussions. It is difficult to predict how the coronavirus will further spread, and even more challenging is to predict its financial consequences.
In any case, it is clear that the combination of the coronavirus and the fall in oil prices caused enormous blows. Nevertheless, the market normally follows a U-shaped course; after a fall, an increase will follow. Therefore, investors try to estimate when and how to react.
Expected is that the stock market will recover over time; the first signs were already seen in China last week. However, emergency reactions led to negative results. On the other hand, interest rate cuts, implemented by the FED as a result of the coronavirus, led to a positive impact. We also expect further interest rate cuts. These support measures are expected to mitigate the effect of the virus on the stock market. In general, interest rate cuts are beneficial for the stock price, but will such measures be sufficient? For the time being, it is not looking good: Negotiations about the oil prices failed, and Italy is quarantined.
We are undoubtedly in a volatile period, as also the VIX, an indicator of volatility, indicates. Nerve-racking, but certainly not always bad. Of course, experts who are managing the underlying funds, monitor these investments closely. This is actually a significant advantage of(for) group insurance; since direct involvement and undertaking actions are not always part of your core business. You have made certain decisions in advance regarding strategic asset allocation and global risk. Based on those decisions, experts manage the underlying funds and respond to the market environment.
If you have any questions about this, do not hesitate to contact us.