Coronovirus and its Economic Impact

I hope this email finds you doing well. I wanted to send out some of my personal comments about the current state of the markets as the Coronovirus continues to have an impact on the economy and your investments. At this time I would say that the Coronovirus has provided us with several unknowns. We do not know when the virus will be contained or what the actual impact to the world economy will be. From a stock market perspective we do not know what the effects will be on corporate profits. Due to this uncertainty, stock markets around the world have been very volatile, dropping into Bear Market Territory (meaning down -20% from its highs) in over just a few short weeks. I would expect that we will see a mixture of both positive and negative reports over the coming months as, hopefully, the number of new cases of the virus eventually start to decrease and we begin to see tangible information about how the economy is doing with real figures for how it has affected corporate earnings. Economically, we have had a few areas that I see as great positives for the future. I would like to highlight that almost every government in the G7 have lowered interest rates with more rate cuts expected. This will lead to lower mortgage payments and easier access to credit for business. We have seen the price of gas come down, essentially saving consumers $20 – $40/week at the pumps. Also, with travel plans being halted the money that travelers did not spent on a cruise or flight remains in their pocket and at some point, this money will flow into the economy and spent in other ways. I believe all of these scenarios will result in more money in the hands of the consumer which is positive for the economy. My thinking is that at some point we will see an end to the hysteria of the Coronovirus, and as people start to feel comfortable traveling gain, people will have money to spend, economic activity will pick up, and stock markets will follow. There is also the possibility that the economy has not suffered as much as predicted and that could be good enough news to start moving in a positive direction. I would trust in the mangers of your funds as they continue to follow their process to find the highest quality companies they can to invest. Disruptions in the markets like this can create excellent opportunities to find new and/or better companies for your portfolio, or add to existing ones. I would like to leave you with an excellent article from MAWER Investments, Don’t Fix Your Ship During A Hurricane. Also, below is some commentary from CI Financial that also covers the impact quite well. I would like to sincerely thank you for your ongoing business and trust during this volatile time, and if you have any questions or concerns please know that I am here for you and feel welcome to contact me at any time.

CI Investments commentary... What is happening in the markets? The spread of the coronavirus disease (COVID-19) and the recent growth in new cases outside of China have prompted a sharp market correction in global stock markets. Assets seen as safe havens, such as gold, increased in value. The outbreak has already had a significant effect on China, the world’s second-largest economy with a key role in the global supply chain and a consumer of foreign goods. With the virus continuing to spread, markets were reacting to the outbreak’s expanding potential impact on the global economy. What should we expect to happen next? In the short to medium term, we can expect weaker economic growth and a decrease in corporate earnings. It will take time for China to resume production and for the disruption to global supply chains to be repaired. The effect on the global economy could be worsened if the number of cases outside China continues to grow. However, other factors are supporting the markets. China is stimulating its economy with monetary and fiscal policy, and both the U.S. Federal Reserve and Bank of Canada have stepped in with a 0.5 percentage point cut to interest rates. It is likely that other governments and central banks will respond similarly, helping to stabilize the economy and the markets while this disruption runs its course. What should I do? Corrections are a natural part of the investment cycle and over the long term, investors who stay invested – rather than trying to time the markets – have been rewarded. This market decline may also represent an opportunity to buy quality companies at attractive prices. We have included the chart below to demonstrate the risk of not being invested and missing out on the stock market’s best days, which often come after large declines like we have recently seen.

Our advice is to stick with your existing long-term investment plan, which takes into account stock market volatility. Your plan was carefully constructed to reflect your personal objectives and investment time horizon. Once again, I thank you for your business and look forward to speaking with you soon. Sincerely, Andrew