Firstly, the Coronavirus is causing massive disruption throughout the world and we would like to say that we hope that you, your family and friends are safe and stay safe during this incredibly difficult time. Your health and the health of your family and friends is the most important thing during this time.
However, markets are feeling the effects of Coronavirus and responding with extreme volatility. Short term ups and downs can be unsettling, but history shows that markets stabilise and recover. If you’re considering switching your investment options or withdrawing super in cash, it’s important to keep in mind your individual goals, risk profile and timeframes so that you avoid missing out on positive returns when markets recover – it’s just a matter of when that recovery will occur. If you would like to book an online (webcam) review or discussion please call us on 08 6277 0353. Due to the Coronavirus we are not conducting face to face appointments at this time.
So what has happened to the markets (Colonial First State Market Update as at 24th March):
The Coronavirus situation deteriorated significantly over the weekend in both Australia and overseas. By the start of the week, the total number of confirmed cases worldwide exceeded 350,000 – with Europe overtaking China to become the most severely impacted region. Although governments have implemented lockdowns and policymakers have announced stimulus support packages, investor confidence appears little improved – driving markets lower to start the week.
DEVELOPMENTS IN AUSTRALIA
Australian Prime Minister Morrison announced “stage one” restrictions starting from noon yesterday (23 March), which resulted in number of indoor venues being ordered to shut. Separately, Victoria and NSW announced the shutdown of all non-essential services – leading Australia to join a number of other developed countries that have previously announced more severe restrictions. For example:
A number of states in the US are currently in lockdown. California told its residents to leave their residences only for absolute necessities, while New York ordered all non-essential businesses in the state to close and non-essential workers to stay home. New Jersey, Pennsylvania and Illinois have all announced similar measures.
A three-week lockdown was announced for people in the United Kingdom – with non-essential businesses and locations to be closed, and people only allowed to leave their homes to buy the essentials, to travel to work (if unavoidable), or to seek medical care. The government will review these measures after this time.
Elsewhere, Germany has banned gatherings of more than two people, except for families. Chancellor Angela Merkel is self-isolating after being treated by a doctor who was confirmed to have the virus.
In addition, the government announced that some impacted Australians would be eligible to access part of their superannuation funds early through myGov. It also announced temporary reductions to the minimum superannuation drawdown requirements to help retirees manage the impact of volatility on their savings. These measures are available over the 2019-20 and 2020-21 income years.
More information on the new measures can be found on the Colonial First State website.
Over the weekend, US policymakers failed to agree on a multi-trillion-dollar stimulus package after the Democratic Party said it did not believe the proposed bill did enough for the average American. On Monday, the stimulus bill also fell short of the Senate votes needed to pass it through Congress.
Overnight (23 March), the US Federal Reserve (the Fed) announced unprecedented measures in an effort to “contain mounting economic and financial-market fallout from the Coronavirus”. These actions were implemented to help keep borrowing costs low and markets functioning properly.
The Australian share market fell on 23 March. The ASX 200 was down 5.6% (or 270 points to 4,546) after markets recovered some of their sharp early morning losses in the afternoon session. By the close of trading on Monday, the AUD was trading at 0.5772 USD.
Overnight, US share markets started the week down, with the Fed’s stimulus package failing to improve investor confidence. The Dow Jones fell by 3%, the Nasdaq fell marginally by 0.3%, while the S&P 500 fell by 2.9% – down almost 35% from its record high only a month ago.
Across Europe, share markets fell on fears that economic stimulus measures would do little to prevent recessions across the region. The pan-European STOXX 600 fell by 4.3%, the German Dax fell by 2.1%, and the UK FTSE fell by 3.8%.
The sharp increase in the number of confirmed cases in Europe, the US and Australia surprised markets. Furthermore, the speed and the severity of the various non-voluntary social distancing measures announced by different governments were also rather unexpected – particularly since most observers believed, as recently as seven days ago, that the Western democracies would be more hesitant in imposing the drastic measures seen in China.
With international air traffic almost completely grounded and with an increasing number of economies each initiating different lockdowns, economic growth will likely be impacted. However, as we have stressed before, forecasting the future is almost impossible since so much is dependent on the spread of the Coronavirus, the ensuing containment measures and the speed at which the number of new cases respond to those containment measures.
The experience of China suggests that the Coronavirus can be brought under control around eight weeks after restrictive measures are implemented. However, “brought under control” does not mean the eradication of the virus, but a significant decline in the number of new cases that allows the level of economic activity to start normalising. Is this reliable guidance as to the future potential path of Western economies? At this time, we don’t know.”
And will we see a light at the end of the tunnel? Markets are struggling to correctly price risks in the current environment, which is why we are seeing very large price reactions from both equity and debt markets to both positive and negative news on a daily basis. Overall, we expect this very high level of price volatility to persist over the next few weeks.
Source: Colonial First State Website, Market Update: Economic Developments and Coronavirus Lockdowns, viewed 26th March 2020, <https://www3.colonialfirststate.com.au/personal/news-and-updates/market-updates/economic-developments-and-coronavirus-lockdowns.html>
The information posted is intended to be general in nature and is not personal financial product advice. It does not take into account your objectives, financial situation or needs. Before acting on any information, you should consider the appropriateness of the information provided and the nature of the relevant financial product having regard to your objectives, financial situation and needs. In particular, you should seek independent financial advice and read the relevant product disclosure statement (PDS) or other offer document prior to making a decision.