Investment Update – COVID-19 Special No. 2

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The start of 2020 has certainly been challenging, from the devastating Australian bushfires over the new year period to the current global COVID-19 pandemic. This month, we look at developments in the March quarter and into April, a period which will be remembered in investment history as the “coronavirus crash”, as COVID-19 took hold of global economies and wreaked havoc in share markets.

The Australian and NZ share markets actually rose in January and February, hitting an all-time record high on 20 February. From that high point, four weeks later on 23 March, the markets had fallen by 37% in Australia and almost 30% in NZ, to hit a low point. These were amongst the steepest falls ever experienced on the stock markets.

This was the “period of panic” due to uncertainty caused by a dramatic increase in the rate of spread of COVID-19 and the increasingly drastic measures taken by governments around the world to contain the virus, which was changing on an almost daily basis. This panic extended to people having concerns for their day to day living and manifested in the infamous “toilet paper buying” around the world and indiscriminate selling of growth investments into cash.

However, since 23 March and continuing well into April, markets have begun to recover (up to the date we are writing this newsletter) as investors have started to become increasingly comfortable that various governments’ isolation and testing directives around the world are beginning to bring the viral spread under control at different rates. The NZ 50 from 23 March to 24 April recovered 23%, while the Australian ASX 200 recovered 15%.

Aus (blue) and NZ (green) 1 year returns to 24 April 2020

Source: tradingeconomics.com

Underpinning the recovery is increasing comfort among investors that the virus is containable. NZ is about to move into COVID-19 Alert Level 3 which means workplaces may be re-opened if work cannot be done from home and the workplaces can operate consistently within public health guidance and ensure the appropriate protections for staff and customers where applicable. Australia is currently at Level 3 and schools are set to re-open in varying degrees throughout May.

For the March quarter, the Australian S&P/ASX300 index fell 23.4% and the NZ S&P/NZX 50 index fell 14.5%. It has been a similar story elsewhere in the world with the US S&P 500 falling 20% over the March quarter, Europe’s STOXX600 falling 23% and Japan’s NIKKEI falling 20%.

In Australia and NZ, the respective governments’ efforts appear to be working and new coronavirus infection rates are amongst the lowest in the world according to the the World Health Organisation’s COVID-19 Situation Report dated 24 April, 2020. The USA and Europe are going through a difficult period as they deal with the increasing numbers of cases and pressure on their health systems. There are 2.6 million world-wide confirmed cases as at 24 April, with 830,053 in the USA followed by Spain (213,024), Italy (189,973), Germany (150,383), UK (138,082), France (119,583) and Turkey (101,790). All other countries are below 100,000 with China at 84,312, Australia at 6,667 and NZ at 1,114 cases.

As countries progress through the coronavirus impact, they will travel through the various steps from initial impact and isolation/lock-down to eventual resolution. Australia and NZ are well placed to move into the recovery phase over the May/June period. However, a full recovery to “business as usual” is unlikely to happen until this time next year. Governments are being cautious to ensure a second wave of infections does not occur.

By early 2021 we certainly hope that a vaccine has been found. The efforts from health companies and their research staff, plus benefactors (such as Australia’s Gina Rinehart, and USA’s Bill and Melinda Gates) are immense. Meanwhile Governments are supporting their people with low interest rates and welfare payments.

We remind our clients that the COVID-19 impact will come to an end and markets will recover and resume their long-term growth trend. Riding this out by sticking to your investment strategy will see your investments, superannuation and wealth restore its growth.

Please don’t hesitate to contact us if you have any questions about your superannuation and investments.

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About the Author:

Mario Isaias
Mario has specialised in corporate superannuation and financial advice for the past 25 years, after beginning his career as a Chartered Accountant. He provides advice to companies with corporate super funds and his advice spans other employee benefits including group insurances and employee wealth plans. Mario holds a Bachelor of Economics from the University of Sydney, a Diploma in Superannuation Management from Macquarie University, is a Fellow of FINSIA and is a Financial Planning Specialist with the Institute of Chartered Accountants of Australia and New Zealand. He provides advice to trustees and companies of large corporate super funds (including defined benefit funds). His advice also covers other employee benefits including group insurances and employee share plans. Mario has spoken at numerous industry seminars over the past 25 years with the Association of Superannuation Funds of Australia and the Institute of Chartered Accountants. Mario holds a Bachelor of Economics from the University of Sydney, a Diploma in Superannuation Management from Macquarie University, is a Fellow of the Financial Services Institute of Australasia and is a financial planning specialist with the Institute of Chartered Accountants of Australia.