THIRTY-ODD years’ in the markets has hardened the senses and taught me the value of staying calm when risk picks up.

After a bumper year in 2019, markets have come under early pressure this year with panic and stress shaking markets following the outbreak and spread of the tragic coronavirus.

Markets, in their usual fashion, ebb and flow between the impact being a non-issue to it being the harbinger to a global recession. Our view is that it is too early to make such a bold call and that now is a time for not panicking into taking potentially bad decisions at the wrong time.

The market sell-off has been fairly severe, with markets falling 5% from their highs on January 20. The coronavirus has been widely cited as the cause of the sell-off, but markets were already close to over-bought levels and susceptible to a sell-off on bad news.

2019 was a bumper year, which saw stock markets rise some 20%, with much of that price rise coming in the last quarter of the year.

By the end of the year, we’d seen big price rises in stocks with very little in the way of earnings’ growth to justify the valuations. In fact, in core markets like the United States, valuation metrics such as forward price-to-earnings at 18.6 times were the highest that we’d seen since 2002. Being priced to perfection made share markets very vulnerable to a correction.

Assessing the impact of the coronavirus is challenging and we make a few observations which we believe will help us appropriately navigate these unpredictable events. Looking at the coronavirus as compared to past pandemics would suggest that whilst the number of incidents identified may be more acute, the fatality rate is lower; with 20,000 cases detected at time of writing and a fatality rate of 2% as compared to 10% for SARS. This is clearly tragic on a human level, but for markets the threat so far has been muted and been helped by the high level of stimulus being injected into markets by China’s central bank.

However, one of the key points of distinction for us when trying to compare this epidemic to similar ones is the size today of the Chinese economy and the knock-on effect this can have on global growth.

The Chinese economy is roughly eight times larger than it was in 2002/3 (when the SARS epidemic broke) and now contributes over 30% to the annual up-tick in global growth. Hence if the coronavirus were to worsen then this would have a direct feed into global growth and corporate profits.

It is this, combined with the general heady level for stock markets that leads us to take a calm and cautious stance to current markets.

Asian assets represent undoubted pockets of value; both on the equity and the fixed income side. If we’ve seen the worst of the coronavirus then we’ll also likely see a snap back in these assets that would return them to what were already relatively cheap levels. Hence there is no great need to rush.

Waiting for further information on the effects is imperative to establishing clarity on the macro-outlook, which in turn gets us back to focusing on wanting to see evidence of improving corporate earnings: something we’ll get a marker on over the month or so. Staying calm seems the prudent approach for the moment with stock markets.

Tim Wishart is head of Scotland and the north of England at Psigma Investment Management