Investors urged not to panic, despite coronavirus stock market havoc

Investors are being told not to panic despite facing their biggest weekly loss in years, as the coronavirus wreaks havoc on stock markets around the world.

The FTSE 100 dropped another 3 per cent by the close today, trading down 216.79 points at 6580.61, with the London stock market firmly in correction territory after a torrid week. 

Investors are dumping shares on concerns this is not a correction that will bounce back quickly – providing an opportunity to buy on the dips. Instead they fear a prolonged downturn, as the effects of coronavirus on supply and demand around the world grip.

However, personal investors have been advised not to panic, with Fidelity’s chief investment officer Paras Anand commenting that ‘fear’ and emotional reactions are ‘not particularly good at keeping investments out of harm’s way’.

Investors are understandably rattled, however, after a week that has seen a dramatic fall on London’s stock market index. 

As the sell-off accelerated last night, the Dow Jones closed down 1,190.95 points on Wall Street, following the worst session in London for four-and-a-half years, and the New York index was down a further 3 per cent today. 

Listen to the latest This is Money podcast on the stock market havoc below: 

Mr Anand said that investors needed to think about behavioural traits and how they can lead us to make bad decisions and avoid panic selling. 

He said: ‘The most obvious response to this kind of situation is fear, which is hardwired into human behaviour and developed as a way to respond quickly to danger. However, it’s not particularly good at keeping investments out of harm’s way. 

‘Such emotions are a product of cognitive bias. A type of bias occurs when investors focus on the most recent news to make decisions (recency bias), rather than looking at historical examples and taking a longer-term view. 

‘As Warren Buffett said: “What we learn from history is that people do not learn from history. When investors get either too fearful or too greedy, sometimes they hide behind the notion that this time is different. Usually they regret it.’

By last night, losses around the world in the last six days of trading had reached £2.8trillion – leaving savers all over the world nursing heavy losses on their pensions and other investments.

As spooked investors bailed out of shares, one seasoned expert declared: ‘We’re in panic mode.’  Jim Paulsen, who is the chief investment strategist of the Leuthold Group, added: ‘This isn’t just a temporary pull-back where people are wondering whether to buy the dip, this is people not wanting to touch this.’

Investors have been urged not to join in the panic, however, as although they may fear further falls, by trying to time the market they could miss out on any bounce back.

John Butters, chief investment officer, Weatherbys Private Bank, said: ‘Markets have had a serious downward move and such moves can be self-reinforcing in the short term as people begin to panic. 

‘Markets fell by much more than they have so far in the crash of 1987. Such events are always possible. However, nobody can consistently predict the markets. 

‘Things could get worse, or the rebound could start today. If markets have fallen by some amount – say X per cent – then they can rebound by at least the same amount. 

‘Even the value lost in the great crash of October 1987 had been made back by early 1989. If you miss a rebound, you will be X per cent worse off forever. There is no getting back lost investment returns.’

Multinational companies including Aston Martin, Microsoft, Standard Chartered and Budweiser owner AB Inbev have all warned about the impact of the virus. 

Airlines and travel companies are among the worst hit as flights to affected areas are shunned by passengers or cancelled.

British Airways owner IAG was down 7.9 per cent yesterday and easyJet fell another 7.7 per cent. Today the airlines’ share prices were both down 11 per cent and 12 per cent respectively.

Philip Marey, senior US strategist at Rabobank, said: ‘Markets have come to realise that the outbreak is much worse and are realistically pricing in the impact on the economy.

‘It’s a bit of a catching up from the relative optimism that was there in the beginning when markets thought the virus will be contained to China with some minor outbreak outside.’

The Stoxx 600 index of eurozone shares fell 4 per cent today, leaving European investors set for the worst week since the single currency debt crisis in 2011. 

Wall Street was on course for its grimmest week since the financial crisis in 2008.

And in the UK, the FTSE 100 index took its biggest percentage hit in four-and-a-half years yesterday, falling 3.5 per cent, or 246.07 points, to 6796.4. 

Meanwhile the FTSE 250, which includes more UK-focused firms, was down 4.1 per cent, or 839.5 points, to 19783.45.

This was the FTSE 250’s largest percentage drop since June 2016, in the aftermath of the Brexit referendum.

It means £188.6billion had been wiped off the value of Britain’s 350 biggest listed firms by that point. 

The sell-off has also wiped £2.8trillion off the value of global shares in six days.

This has led to an alarming fall in the value of investment portfolios and pension pots, which are typically invested heavily in blue-chip companies.

British Airways has cancelled flights to mainland China until the end of March and also axed some flights to and from Milan as a result of reduced demand for travel to the area, which is at the centre of Italy’s coronavirus outbreak.

Shares in Norwegian Air plunged by a quarter in value to an 11-year low yesterday, meaning it has now lost more than half its value since the beginning of the week, although it was up 6 per cent today.

Oil tumbled to its lowest level for more than a year as the spread of coronavirus sparked another day of carnage on the financial markets.

The price of crude fell towards $50 a barrel on fears that a sharp slowdown in the global economy will hit demand. Oil has not been this cheap since December 2018.

Motoring groups said the slump should lead to lower prices at the petrol and diesel pumps. RAC fuel spokesman Simon Williams said: ‘Unless the barrel price suddenly leaps in the next few days, we expect to see major supermarkets announce fresh price cuts within the next week.

‘This could lead to the average petrol price falling below 122p per litre for the first time in 12 months, and diesel dipping below 125p per litre for the first time in nearly two years.’

The latest sell-off in the oil price came as global stock markets tumbled.

Gold headed the other way, rising towards $1,650 an ounce, before falling back below $1,590, as investors looked for somewhere safe to put their money.  

The ructions could see oil cartel Opec and its allies cut production to prop up prices when they meet in Vienna next week.

Edward Moya, an analyst at trading firm Oanda in New York, said: ‘Oil is in free fall as the magnitude of global quarantine efforts will provide severe demand destruction for the next couple of quarters. 

Prices will remain very vulnerable as the pandemic fears could deliver a greater shock to demand than what happened during the financial crisis.

‘Any bounces with oil prices will likely be muted until markets better understand what the total global shock to crude demand will be.’

Jeff Kilburg, chief executive of Chicago-based KKM Financial, said: ‘Current forecasts of crude oil demand have fallen off a cliff.’