Share Market News: COVID-19 Update

News of the continued worldwide spread of the coronavirus has sent equity markets into a spin, with plenty to consider regarding the likely impact on communities, economies and equity markets. Current market conditions are undoubtedly creating considerable uncertainty for some and excitement for others.

While the virus presents a new challenge, there is nothing new about market volatility. Markets have historically survived viral outbreaks to eventually recover and reach new heights. This time the difference is that many can’t recall the last one, and hence fear has kicked in.

Central banks are using monetary policy and liquidity based measures in an attempt to contain both the spread and effects of the virus on unemployment and economic activity. Interest rates have been cut twice in recent weeks, with the RBA meeting out of cycle, further cutting rates to 0.25%. And we can reasonably expect more to come. Coupled with an announcement of a $17.6bn stimulus package, the Government is attempting to contain the possible economic contraction in the coming few quarters.

It’s not all bad news.

When the market fell originally – there was no discrimination between good stocks and bad, with both types falling equally. However, what we have seen in the last week, is grocery chains doing well and the telcos bouncing around whilst travel and tourism stocks take a hit. Success through these challenging times will be from those businesses that swiftly adapt and are agile enough to move with the times. An example of this in action is the announcement from the CEO of GYG (Guzman y Gomez – Mexican fast-food chain) introducing free delivery in the coming weeks. Successful businesses will change their process to benefit from changing conditions.

Chinese officials have confirmed that the epidemic is now under control and local communities are getting back on track. At least 90% of major industrial producers outside of the Hubei Province have now resumed operations after the halt. If Australia experiences anything like China has, the period for which it takes to get us back on track will depend on Government policy regarding containment.

Below are some key points that we believe you should consider during these times:

1. Avoid emotional decision making – whether that be for buying 6 months supply of toilet paper or selling shares.

“Occasionally, there will be major drops in the market, perhaps of 50 per cent magnitude or even greater. But the combination of The American Tailwind and compounding wonders will make equities the much better long term choice for the individual, who can control his or her emotions. Others? Beware!” – Warren Buffett











(Click the image above for a larger view)

Some of you may have seen this graph before – There are many studies that show that emotional investor behaviour is likely to lead to sell at market lows and buy at market highs. From time to time, there is inevitably volatility in stock markets as people nervously react to changes in economic, political, corporate and/or global matters. Although historical performance is no guarantee of future market performance, we can certainly anticipate equity markets returning to some level of predictability in time. The key is to stay focused on the long-term objectives, and whilst many may emotionally react to uncertainty, investors should maintain a level head and consider where possible the opportunity of exploiting lower equity prices.

2. Downturns are more common than many may expect












(Click the image above for a larger view)

The above graph shows that most years have declines, some larger than others, and it doesn’t pay to sell when they do arise. To combat the impact of downturns, the asset allocation within a portfolio will be doing its job of protecting (in part) the capital within the portfolio. Spreading the risk by investing into different investment buckets may curb the contraction of the portfolio value during a downturn.

3. Stay focused on the long-term objectives












Source: Carl Richards @Behaviorgap

Ultimately, life will return to normal and equity markets will continue their ebbs and flows as they always have. We expect investors will look back on the current state of play as an opportunity, just as we have seen in most dislocation events through history.

In conclusion, this is not the time to sell-up, this is the time to remember that our investment strategies were and still are set up for the long term. We will continue to monitor and advise on your portfolio.

BG Private Clients remain committed for your financial confidence, if you have questions or are not sure what action to take during times of market volatility, please contact us on 03 9810 0700.

Finally, remember to remain focused on the long-term objectives as often short-term volatility provides good opportunities for future wealth growth.

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    This information is of a general nature only and has been provided without taking account of your objectives, financial situation or needs. Because of this, you should consider whether the information is appropriate in light of your particular objectives, financial situation and needs.

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