How Will Coronavirus Impact Your Cash Portfolio?
The World Health Organization has finally given the coronavirus outbreak in China an official name: COVID-19, for “Coronavirus Disease 2019.” Unfortunately, that’s one of the only things we know for sure about the new disease, even as the outbreak extends well into its third month.
Consider everything we don’t yet know: Will the draconian quarantine imposed by Chinese officials succeed in limiting the spread of the disease? Or will it become a true global pandemic? How high will mortality rates rise, and how much stress will the disease impose on overtaxed global health systems? Will the economic disruptions already experienced in China drag the rest of the world into a global recession? Or will the Chinese economy bounce back quickly as it did after the 2003 outbreak of the SARs virus?
Those aren’t idle questions for treasury professionals responsible for maintaining safe, liquid cash portfolios in the midst of rising uncertainty. While it will be impossible to answer them until we know a lot more about the disease and its progression, there are plenty of steps you can take to plan for the best while preparing for the worst.
Our February research report, How to Assess the Coronavirus Outbreak’s Impact on Liquidity Portfolios, provides a framework for understanding the potential impacts on money market funds and short-term fixed income investments. It examines the global economic outlook, risks of rapid deterioration in corporate earnings and counterparty credits, market volatility driven by both fear and reality, and possible interest rate changes and other responses from central banks.
We also provide advice on how to balance liquidity, risk, and yield in cash portfolios during a fast-moving crisis. Among other things, you can lessen risk by reducing exposure to credits that will be directly affected. To improve liquidity, you can focus on strong, well-known credits. And with interest rates expected to stay low or move lower, you might consider locking in current yield levels with a moderate extension of portfolio duration.
Most of all, though, you will want to stay informed. There are currently more unknowns than knowns. But every day brings new and better information. Our February research report will help you use that information wisely.