The coronavirus outbreak triggered a sell-off in global equity markets leading to high volatility levels.

Additionally, increased safe-haven demand resulted in declining and occasional record-low government bond yields. In the last week of February, US stocks showed the largest weekly loss since the Global Financial Crisis. At the beginning of March, the G7 reaffirmed its commitment to support the global economy and the US Federal Reserve cut its policy rate by 0.5%.

The outbreak of the coronavirus is likely to have an impact on Chinese growth and potentially the rest of the global economy through both demand- and supply-side channels. Per end of February 2020, we impose a view that detracts 0.5% from the Chinese growth outlook on 1-year horizon.  However, the magnitude and persistence of the economic impact remain highly uncertain at this point. The World Health Organization assesses that with strong and coordinated measures, the spread of the virus can yet be contained. We currently assume that necessary policies are implemented and China’s economy returns to normal over the course of 2020. A longer-lasting or more intensive outbreak would negatively impact our economic outlook going forward.

When building portfolios together with our clients, we always take the possibility of significant market moves into account. Investment decisions based on our December 2019 Quarterly Outlook include the possibility of short-term equity drawdowns as well as medium-term cyclical downturns. Once a downturn materializes, however, it is best to make investment decisions based on an updated outlook that incorporates the downturn.

Every month we incorporate the latest economic and market developments in our updated outlook. The most recent outlook that is available at the time of writing this insight, takes into account the situation per end of February 2020. As per the end of February, our short-term momentum outlook reflects a significant increase in uncertainty and downside risk. Our medium-term business cycle outlook has worsened following the higher equity market volatility and worsened sentiment indicators. Global business cycle risks remain strongly tilted to the downside.

We will continue to closely follow developments and evaluate our position as more information regarding the virus becomes available.

Please feel free to contact your Ortec Finance team to discuss the impact of current market developments.

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