Catholic Investment Services tends not to opine on current events owing to our efforts to remain focused on the long-term. In times like these, it seems more prudent to observe and reflect rather than to react or comment, particularly when there are so many unknowns and the situation is rapidly evolving.
Nonetheless, the spread of the coronavirus has sent significant shock waves through global stock markets, so we recognize the importance of sharing our thoughts and observations.
- The coronavirus, COVID-19, is beginning to spread well beyond China and is creating uncertainty for the global growth outlook and sparking volatility in broad financial markets. The human impact of the virus has been significant, and no one can say for certain how the spread of the coronavirus will evolve. The World Health Organization still identifies several “Knowledge Gaps” in their most recent report including “the behavioral and socio-economic risk factors for infection in households / institutions and (public) communities.”
- The Chinese economy is much more significant to the rest of the world today than it was during the SARS outbreak. Importantly, we believe the Chinese government is also far more transparent today than it was during SARS epidemic when the initial response was something akin to “no problems here, everything is under control.” Today, in addition to limiting the travel of millions of those in infected areas, the government appears to be much more proactive in building new hospitals to care for the sick, sequencing the genetic makeup of the virus, using new blood tests to try and detect infected people, and testing existing (HIV) medications against COVID-19 while also working on a vaccine. Both China and the rest of the world are fighting the virus from a much earlier stage than might have been the case in the past. This is positive.
- From an investment perspective, we are monitoring the impact of COVID-19 from all angles including communicating with our investment partners and CIS board members. The impact of this virus on business performance and supply lines won’t be known for some time – however, it seems likely that many businesses won’t make their original performance targets for 2020. The markets are doing their job of trying to discount the impact this virus is expected to have on the Chinese and global economies and on corporate earnings. The recent market decline followed fairly spectacular gains in 2019 and is not out of line with historical market corrections.
With so little known and such a wide set of potential outcomes, the job of making investment decisions is harder than normal, but these types of events often prove to be opportunities for long-term investors to put capital to work. It is too early to draw that conclusion and so until we know more, we will continue to monitor the situation and maintain our long-term focus.
-Tom Lanctot, CEO of Catholic Investment Services