The market noise hasn’t stopped a large number of UK-listed companies seeing strong share price gains
Thursday 06 Feb 2020 Author: Daniel Coatsworth

Readers often ask if they should sell their investments in times of market turmoil, such as the current environment fuelled by coronavirus fears. The best answer is to weigh up the evidence and grasp what the market is thinking rather than going straight to panic selling.

The market has currently priced in a lot of negative news, as illustrated by the major indices in Asia falling by up to 10% over the past few weeks. Copper and oil prices have both fallen by 12% since mid-January.

Funds with exposure to Asia have understandably been hit, either those focused on the region or broader ones with an emerging markets remit. Stocks in the UK, Europe and the US have also been hit, but to a much lesser extent.

The big question for investors to consider is whether the coronavirus will only have a negative impact on China or whether it will hurt world trade. We don’t know at the moment and so we are in a very sensitive period for the markets.

If the coronavirus can be contained in the next month then it is fair to suggest that markets could see a big rebound. But if
the health incident drags into March or April, one could easily see further declines in markets around the world.

The best action based on the current state of affairs is to do nothing, although a major escalation of the coronavirus could warrant different thinking. As it stands, selling Asia-focused investments now would mean crystallising those recent losses and history suggests the market bounce-back from such events could be fairly swift.

Interestingly, some Asia-focused funds were even moving upwards at the same time China saw its benchmark indices collapse on Monday (3 Feb). For example, Vanguard FTSE Emerging Markets ETF (VFEG) traded 1.2% higher on the day despite China being its biggest country weighting at 37.3%.

Closer analysis of the UK stock market shows that the coronavirus is far from dragging everything down. Since the virus started to spread outside of China and Asian markets peaked in mid-January, 521 UK stocks have increased in value.

The list of risers can be narrowed down to 55 stocks worth more than £100m and achieving more than 7% gain since mid-January. The spread of sectors among this list of risers is quite diverse, including biotech, construction, electronic equipment, gold mining, software and real estate.

A lot of these share price gains are down to company-specific news rather simply being defensive stocks which attract investors’ attention in times of turmoil. It shows the importance of keeping a level head and focusing on the news flow despite a backdrop of noise.

If you’re very worried about what might happen to markets near-term, check you haven’t taken excessive risks in your portfolio. On the flipside, if you are comfortable with the current risks, you might want to look for some bargains in the market. We would suggest only doing that if you’re an experienced investor and understand the consequences if the coronavirus cannot be beaten quickly.

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