News 246 views February 24, 2020

Coronavirus Threat to Your Financial Health: How to Counter

Corona Virus Disease or COVID-19, a dangerous virus that causes illnesses starting from the common cold to more hazardous diseases in the respiratory systems. Coronavirus had started from one city Wuhan in China and now more than 60,000 people globally are affected by this across 25 countries at least. China lost almost 1400 lives which have surpassed the death toll from the SARS epidemic in 2002-2003. The World Health Organisation or WHO has on the record declared this as a global health emergency. The virus has raised an alarm concerning the worldwide capital markets as well. As the trade is getting majorly interrupted and therefore the demand for merchandise in China goes low, the effect will be on the Indian companies as well.

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Macro-Level view

From a macro-level perspective, the financial consequences of this kind of outbreak are deep. According to WTO, China is the major exporter and second main importer of goods. It plays a vital role in the universal value chain as the center of both demands as well as supply. China, being the world’s 2nd largest economy and holds a share of 16% of the worldwide GDP or Gross Domestic Product. China is also India’s principal trading partner to the tune of the biggest share of 14% of the total imports. And hence, any longstanding disturbance in the economic movement in China is sure to keep the markets affected in a big way. The entire country has come to a standstill where the all offices, schools, factories and other establishments are closed as more and more people are getting affected by this virus. And naturally, travel restriction also has been imposed on and from China in a major way.

The effect in the Investment Portfolio

As far as the global equity scenario is concerned, there is not much hype or financial worries, which includes India as well, however, the fact that the situation may lead to an economic disturbance resulting in ovality in the market, cannot be negated. The equity markets are mostly determined by the optimistic earnings growth viewpoint and hence the effect on this situation in China can be far-reaching limiting or diminishing various crucial economic activities because of disturbance in the source of the supply chain from a country like China. As an example, we can take the effect of the virus on gold prices recently which has seen a low price as this is treated as a safe means of investments. The impact is felt more or less across various industries on the source of inputs from China which includes electrical machineries, tools for machines, metals, organic chemicals, pharmaceutical constituents as well as non-electrical machines. The effect could stop production or maybe companies will be bound to look for the alternative markets resulting in a much-increased cost of inputs. Experts say till the time the normal supply restarts, Indian companies might feel the heat in a few weeks as their stock of the raw material is exhausted and ideally the firms which are fully dependent on the supply chain from China for their necessary raw material must be avoided. Makers of the automobile together with electronic and pharmaceutical firms, trust profoundly on these substances and will have supply challenges.

How to counter the threat?

Well, the only option to counter this threat is to invest in the equities with a long-term goal and not to focus on the short-term investment option by getting panicked due to this threat. If you have made your investments in a diversified equity fund, the fund manager will be trimming down the exposures to those segments where the financial effect of the virus will be least or maybe completely negative. The best possible way to face these kinds of situations is to have sufficient funds that can be used in emergencies. As per the experts, this is certainly not the right time to fiddle around with your long-term investment tools and take a risk of losing the money. Instead, keep calm and use your emergency funds, if needed and stay with the investments. Any hasty decision to change the investment pattern will not be a good idea at this point.

Some important and quick Do’s and Don’ts listed below for a quick reference.

Can DoMust Not Do
You can buy a good health insurance plan as per your needDo not fear and start selling your investments that are there for meeting your long-term goals
Stay invested in your long-term investments Do not be in a hurry to buy things in the fear of its increased prices in the future
You can take coverage for travel for medical exigencies or cancellation of flight
First assess the condition, and then a decision to cancel your travel plans
Creation of emergency reserves and save the money Do not make investments in gold keeping in mind the short-term view

The mantra for dealing with a situation like this to handle your financial health is to be patient and wait for the right moment to switch funds if needed. Take expert to advise and follow the do’s and don’t and stay invested.

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