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It has hardly escaped anyone's notice that the spread of the Coronavirus has had a major impact on both human life and economic development around the world. It has also made a real impression on the global financial markets. The US central bank's announcement yesterday to lower interest rates to near zero and stimulate through increased bond purchases received a negative reception, to say the least, and the world's stock markets have once again crashed today.
The big question is whether this is the perfect storm that triggers a series of negative knock-on effects for the global economy, or whether it is something that is transitory and creates buying opportunities.
The way we see the development, it is first and foremost that the concern is justified in many respects. There are simply too many question marks. The spread of the virus has increased and there is great uncertainty about what happens next and whether our leaders make the right decisions. However, the goal is the same for all countries – to reduce the pressure on healthcare by influencing the immediate spread of the virus so that the most vulnerable can be helped in the best possible way. The positive thing so far is that those who have been infected in most cases have had mild symptoms and that the mortality rate is relatively low.
As for the impact on the economy, it is brutal in the short term for some sectors. SAS's announcement yesterday to lay off a full 90 percent of the company's employees is a signal of how badly off it is in some places.
The sector we invest in, security, has also seen significant effects from the virus, at least if you look at stock price performance. The most notable example is Boeing, which has seen its price more than halve over the year (including the premarket for today's trade). The background is that it was communicated that the company will use an available bank loan of up to 13.8 billion dollars, which the market interpreted very negatively. Otherwise, the security sector has also not benefited from its traditionally defensive nature. Investors have simply sold everything across the board.
How then should one behave in this situation?
As an investor and saver, it is important not to abandon your strategy and let your emotions rule. We don't know when it will turn around, but we feel secure in owning the security sector in particular in the long term. It is a sector that is not cyclically sensitive and that benefits from increased uncertainty and whose revenue streams are secured through long government contracts. States will hardly reduce defense funding in the future if the Coronavirus creates a continued negative spiral for the world's societies and economies.
At the same time, it is important to be humble in the face of the extreme market situation we are in. We continue to monitor the portfolio carefully and downweight companies with greater uncertainty in future revenue streams.