Today I received an email from Sam’s school talking about contingency planning for possible school closures. We’re also seeing a lot of conferences being cancelled and companies taking measures to curb travel and meetings (encouragement to work from home for example). So, it does look as though we are entering into a quarantine-lite type environment in Australia, mirroring some measures taken elsewhere.
There is an awful lot of news on the continued spread of the Coronavirus and it can be difficult to filter through all the noise. What we do know is that markets are reacting savagely to the ongoing spread and measures being put in place globally to slow it.
We wrote last week about the initial market falls and they have maintained their rocky path downwards since then. At market close today the All Ords finished on 5,370, a fall of over 25% from its recent high on 20 February 2020 of 7,255 – a bear market is a fall over 20% from recent highs.
What else do we know?
The bad news
- The World Health Organisation has finally labelled COVID-19 a Pandemic – a disease that is spreading between people in multiple countries at the same time.
- The virus has spread to 110 countries, infected 120,000 people and claimed over 4,300 lives.
- Australian cases stand at 138, including US acting couple Tom Hanks and Rita Wilson on the Gold Coast.
- It is hard to gauge the mortality rate properly, as many mild cases may not be accounted for, but estimates put it somewhere at 1-3%.
- The most vulnerable are older people and those with pre-existing medical conditions.
- It takes five days on average to start showing symptoms and the incubation period can last up to 14 days.
The good news:
- For most people, it’s a very mild illness.
- According to data from China, children appear relatively unaffected with either no symptoms or mild cold-like ones.
- Daily outbreaks in Hubei, China – where the outbreak began – have reached new lows.
- South Korea reported its lowest daily increase in cases for two weeks.
- There has been, and will continue to be, a huge response from governments around the world to stem the spread – for example President Trump’s announcement suspending all flights from Europe for 30 days (UK aside).
- To prop up economies, governments are announcing massive stimulus programmes – see our government’s $17.6 billion plans announced earlier today.
What next?
There seems to be widespread views on where this is heading, from the ‘preppers’ who insist it’s a doomsday scenario to the actual experts in the field (virologists) who calmly state the known facts and talk about their expected outcomes. I much prefer the calmer approach.
Suggestions are that Australia and the US are about three weeks behind Italy in regards the speed of the spread and number of confirmed cases, but Italy seems to be a bit of an outlier in the severity of it all. Perhaps a better idea is to watch the UK, France and Spain as a guide to what will happen here and in the US. Currently it seems that once the virus takes hold in the community the peak spread seems to hit about 20 to 30 days later.
Based upon this it looks like we’ll have a couple of months where we see much higher numbers and then it tails off as the communal measures impact, though effects will likely be felt for much longer.
For markets it’ll be the US experience that continues to lead the way and we expect continued volatility as the magnitude of the virus becomes more apparent.
The key to the turnaround will be when the market stops reacting to the news and starts looking forward. If this virus follows the same path of others like SARS and Swine Flu, then in six to nine months we will be wondering what it was all about.
Until then, we’ll continue to see large short-term movements as markets digest new information; though it was interesting to see that our market didn’t respond much to Scott Morrison’s stimulus package today. At some stage Trump will deliver his economic response proposals and given that he is in an election year and pins his success to the markets I think it will be big.
In times of market turbulence, you must sit back and look at things with a calm and logical mindset and think about where you want to be in two to five years’ time, not two to five months.
In the long term, we know share prices broadly follow profit and dividend growth and once we are through this painful period markets will rebound. In the meantime, the defensive portion of investment portfolios provide the stability and potential funding for participation in the subsequent rises.
I don’t know which is scarier – getting a mild cold or potentially having to spend two weeks in the confines of our house with two young boys. Possibly the best advice in the school notice was to make sure your internet is working well. I think it was meant for homework purposes, but my guess is that YouTube, Netflix and Tik Tok may also be useful to have.
Simon Briggs is a Director at Keep Wealth Partners.
Keep Wealth Partners Pty Ltd (AFSL 494858). This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from a financial planner who can consider if the strategies and products are right for you.
