This is a follow up to my article in last month’s newsletter about the covid19, also known as the coronavirus, or as we refer to it in our office – the bat bug.
On Friday the 21st of February the Australian market closed at a high of 7139.
Last night it closed at 6325 – a drop of 11.4% in 13 days.
Since I wrote this article, the market has risen 0.97%.
Why is this happening?
People much smarter than I have explained to me that covid19 is much more contagious than your usual respiratory issue and could very well become a seasonal virus.
A high proportion of those that contract it will be asymptomatic, some will get mild symptoms, a small portion – usually those older or immuno-compromised may get more severe symptoms and with a very small portion passing away.
The World Health Organisation announced last night that that death rate really depends on the Medical resources available.
The real economic danger in this virus is not how contagious covid19 is, but the nature of which information and misinformation is spreading, causing people to act irrationally. This started as a sell down due to economic uncertainty, followed by some frankly embarrassingly racist behaviour, and yesterday a woman in Australia pulled a knife out over an argument in the toilet paper isle.
Is there really an economic issue here?
Panic and irrational behaviour means that some people aren’t living ‘normal lives’; going to work, travelling on holidays, or buying reasonable levels of toilet paper. There are cases of tourist locations not opening, and even an aged care centre in NSW that had all staff walk out.
This irrational behaviour can flow onto those who are acting quite reasonable as it effects their ability to lead normal lives, and buy toilet paper.
On a larger scale we could see a decrease in economic activity due to decreased tourism,
reduced international enrolment in higher education, property markets rental gaps (due to less expats), and decreased agriculture and mining exports. There is a real economic impact here, however the question should be 'will it endure long enough to get serious'.
If it is a short term issue, eventually people may get sick of being home-bound and not living their lives and things will return to normal.
This can be further helped by economic stimulus of which the Australian government announced they are working on a package right now.
For it to become a long-term economic issue it would need to be significant enough that businesses fail and homes begin to get repossessed causing a debt crisis. While unlikely, this is a possibility, given the levels of global and domestic debt.
As my client you may be concerned of this but you shouldn't panic.
We will have discussed the idea that a market crash is not likely, but inevitable – and that is fine. In fact for most of you, you’ll see multiple in your lifetimes. Based on your goals you should be set up ready for it. Either
You are retired or about to retire, your portfolio is set up to be able to wait out a 5 year GFC - before you had to crystallise any losses. So you have funds to pay your lifestyle int he short term. Don’t panic.
You're an accumulator, and you’re set up as a long-term investor. So you can wait this out. Don’t panic.
You’re an aggressive investor and you want to get more money into the market. You may be worried about picking the right time to get into the market. That's impossible. Don’t panic!
I’d may be off the mark, but to me this feels like a different version of something we have seen before, so as goals focused, long term investors be patient, wash your hands, and don’t get your news from facebook. There is always something to worry about.
Side note, keep an eye out for a bargain on Toilet Paper in a few weeks when the supermarkets accidentally over-order to cater for the hysteria and have surplus.
Any 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.Past performance is not a reliable indicator of future performance. This article provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. This information does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness, having regard to your personal objectives, financial situation and needs having regard to these factors before acting on it. This article may contain material provided by third parties derived from sources believed to be accurate at its issue date. While such material is published with necessary permission, we do not accept any responsibility for the accuracy or completeness of, or endorse any such material. Except where contrary to law, we intend by this notice to exclude liability for this material.