The S&P/ASX 200 Index (ASX: XJO) has lost 26.48% since the start of the month as coronavirus fears grip markets around the world.
It's true that now is not the time to panic sell and crystalise a significant loss on your investment. We all know that share markets are forward-looking, but how far in the future are they pricing in?
How forward-looking is the ASX 200?
The nature of share markets means that current prices reflect future expectations of events. That means the current shutdown should (in theory) be reflected in current valuations. Obviously, these forward-looking estimates will change as more information comes to light.
For instance, if we see the coronavirus pandemic get out of control, things could get worse for ASX 200 shares. However, it's entirely possible that heavy losses in some ASX 200 shares like Flight Centre Travel Group Ltd (ASX: FLT) are pricing in a worst-case scenario.
It pays to look back in history at times like these. The GFC was really gripping markets from November 2007 onwards, but we didn't see the bottom until March 2009. Now, that's not to say that we will see a similar bearish period. The reality is that if physical distancing works here, Australia could come out in relatively good shape. Markets have already plummeted incredibly quickly, and the ASX 200 is back to 2012 levels.
The key here is that any selling now would be reactive. If markets are pricing in the future, selling out now could mean you miss out on the upswing when things start to get better. It's a difficult time given we're seeing the world hurtle towards an economic and public health crisis simultaneously.
What's the best thing to do?
In a bear market like this, it's best to look for undervalued ASX 200 shares. If you can afford to buy cheap ASX 200 shares right now, you could accelerate your retirement on the other side of this. Timing the market is near impossible, but buying either side of the dip is not.
It's a good time to plan a long-term investment policy, diversify into a number of good companies. When that's done, you can sit back and enjoy the gains in the decades to come.
