How fast things change. In one week we go from extreme optimism to extreme pessimism. The markets have pulled back fast and furious which is a normal circumstance in a bull market. In quick selloffs it shows how vulnerable markets can be at any time based on fear. The reality is that you always have to do your homework on corporations to see what the true value is. Make decisions based on this knowledge and homework rather than making emotional decisions in reaction to market moves.
Regarding the Coronavirus or COVID 19 as it is now called is a type of flu. I am not a doctor but this flu has affected a large number of people and countries however the fatality rate is low. The fear that is out there is that we are going to have a demand shock. People will stop going shopping or to sporting events and travelling etc. I think we are too early to see this as of yet however the market is pricing in for the worst. I do feel this flu like all others will run its course. I also agree we are beyond containment and we will be exposed to this flu but it will not be as severe as predicted.
At the time of writing, the market is down over 10% year to date in the U.S. and about half that in Canada. I see incredible value in a lot of companies that have been caught in the downdraft and we have been nibbling away. I would change my opinion if I was witnessing warnings about corporate earnings and actual dividend cuts. The companies we have been buying like Royal Bank and BCE have both raised their dividends yet by the recent selloff you would assume it was going the other way.
Overall we do not know exactly yet what the impact will be from this but I do feel the market is cheap and has great long term value at these levels. Based on my previous experiences we will continue to nibble away during this period.
Paul Belous, CIM
Vice President, Portfolio Manager