Not only is coronavirus dominating public life, the economy and life at home, it has also triggered panic on the financial markets. The price falls in recent days are amongst the greatest in stock market history. The last time such a dramatic crash occurred on the stock markets was in 1987.

Equity investments suffered the biggest hit. The losses on the Swiss equity market were somewhat lower than those on the markets of other industrialized nations. But the financial markets hardly differentiated, and practically all asset classes suffered from panic-driven trading. There has also been a slight fall in the value of bonds and gold recently. They usually gain in value when equity prices plunge.

Automated trading and stock market purchases made on credit may have exacerbated the significant fluctuations on the stock markets in recent weeks. However, the extraordinary market turmoil was undoubtedly triggered by the spread of coronavirus in Europe and the USA. This means the fears we have been expressing since January have now been confirmed – the risks to the global economy presented by the virus has been underestimated. Even though we did not predict the scale of the crisis, our cautious positioning of recent months has proven correct. More specifically, we gradually reduced equity investments in January and February and increased our allocation of government bonds from industrialized nations.

China’s economic downturn provides a taste of what is to come

We are advising our customers to hold off from increasing equity holdings until the scale of the impact of the emergency measures can be assessed more accurately. As in Switzerland, these emergency measures have only recently been introduced in most countries in Europe. The USA – the most important economy from the perspective of the financial markets – still has a long way to go. The impact on individual companies and sectors will increase significantly over the coming weeks.

China has provided an indication of the extent of the impact. Apple, for example, closed all of its stores in China in the first week of February and only reopened them last week – after six weeks. So it’s no surprise that retail sales in China fell by 20 percent compared to the previous year in the first two months of the year.

We are continuing to focus on risk reduction

We are currently further reducing the equity allocation in view of our pessimistic economic assessment. We also made another adjustment to our portfolios this month. Owing to the sharp fall in commodity prices, particularly the oil price, we decided to reduce the overweight position in emerging market bonds. Around a third of the bonds denominated in US dollars of emerging markets come from energy-exporting countries. The budget position and credit ratings of some countries may weaken due to the sharp drop in the oil price since the start of the year.

Performance of asset classes

Our positioning – Swiss focus