The FTSE 100 is down by more than 3.5%, as I write on Monday morning. Some big fallers in the index are down by more than 10%.
Markets are going into reverse again, as fears growth that the coronavirus outbreak may continue to worsen. Unsurprisingly, travel groups easyJet, TUI and British Airways owner IAG are among the worst hit stocks. Big miners are also falling, as they depend on Chinese demand for much of their profits.
As long-term investors we try to stay focused on what might happen in five years, not five weeks. But it’s always uncomfortable to see the value of your portfolio falling. In this piece, I want to explain what I’m doing in this situation.
Understanding the risk
The human impact of the coronavirus is obviously the most serious concern. But for businesses and the global economy, there’s a second risk — loss of access to goods manufactured in China.
One example is FTSE 100 firm Bunzl. This little-known but highly successful group supplies a huge range of consumable products, such as cleaning products, food packaging and healthcare safety gear to business customers all over the world. This firm warned today that if coronavius continues to disrupt Chinese manufacturing, “the group may face some shortages of certain products.”
Associated British Foods — which also owns Primark — also warned today its food factories in China are currently operating at reduced capacity. The company also said that although Primark has stock “for several months”, if delays to factory production continue there’s a risk of supply shortages later this year.
ABF and Bunzl are well-run companies with strong finances. If they do face any disruption from coronavirus, I think it’s likely to be temporary and easily managed. But many companies may be more seriously affected.
If you multiply this effect across the global economy, you can see why markets are getting jittery. Coronavirus could be the trigger for a global slowdown.
What I’m doing
I don’t know what’s going to happen as the year unfolds. But I’m pretty confident that over a multi-year timeframe, things will get back to normal. I suspect some businesses will also start to consider reducing their reliance on Chinese manufacturing, which could help prevent future problems.
I’m not planning to sell any of the shares in my portfolio. At the moment, some of my stocks are suffering more than others. But selling them makes no sense to me, because I want to own them for years to come.
By selling now, I’d miss out on dividends paid while I was out of the market. I’d also have to try and work out when to buy back into them again. Given the forward-looking nature of the stock market, I suspect I’d end up paying more to buy the shares back then I sold them for.
The only thing I’ll be doing is continuing to buy more shares when I have cash available. I’m not going to try and call the bottom — it’s too difficult. Instead, I’ll just keep drip-feeding money in where I see decent value. Over time, I’m confident things will work out okay.
