This is my third and hopefully final piece on the Coronavirus situation.
I will look at the current market conditions and following my previous posts, talk through how things may go from here.
The Australian Stock Market
As at the close of the market the month of markets has looked like this. Yes, it hasn’t even been a month!
Lets take that back 5 years. As you can see the market is still not at its lowest point in 5 years, which was back in 2016. Do you know what that was for? (It was concern over interest rates)
Now let’s go back until before the GFC. It appears we have come full circle – the market closing today at the same price as 31st of May 2006.
What I am illustrating here is that we have not yet hit rock bottom, nor is this anything we have seen before – because we have never had these conditions.
After more than 10 years of prosperous markets the short-sellers have been craving a crash, and they are doubling down on it at the moment. A short seller is someone who places bets on the market to fall, often shortly before they release ‘scare’ information to the market – and unlike any point in history, anyone with a computer and a few thousand dollars can be a short-seller.
As a world population we are drunk on information, and not all of it is accurate. This amplifies the effect of any fear (or greed) and is making markets far more volatile than previous.
There is a huge unknown with the Coronavirus, and markets hare uncertainty above all.
The market, as I refer to is the index of the top 200 companies within Australia, with their allocation based on their size in Dollars.
So, I ask you –
Are the largest 200 companies in Australia actually worth 31% less than they were in January? Probably not.
What can we expect next?
It is impossible to say in the short term, although a recession in Australia is very likely. Remember though, a recession in Australia is defined as 2 consecutive quarters of negative growth in money being spent – which when you think about it, is not that bad – but the press will jump onto it.
If I were a pessimist I’d say
We may see a runoff effect into debt markets (which is why the US Fed dropped rates, and began ‘buying back’ debt).
We may see a drop in unemployment due to small and medium business not being able to cope with the loss of revenue.
We may see a sharp increase in cases of COVID19 resulting in an overrun medical system.
OR, if was were optimistic
We could see a flattening of the infection curve, and a sustainable approach to the management of the disease.
We could see most Australian’s who are healthy, contract the virus over time, listen to the medical advice and self-isolate for two weeks while watching Netflix and recover.
We could see people stop hoarding valuable medical resources and leave them for those who really need them.
We could see Australian’s show the empathy and care they displayed during the fires and step up to do the right thing.
We could see the market come back just as fast as it dropped, because the fundamentals of many companies have not changed, and either a vaccine is developed, or the community just start to develop an immunity.
I am mostly optimistic, and I know we will recover – it just depends on how long.
Fundamentally the way this pans out depends on how we act as individuals and as a nation.
As this is an opinion piece, my opinion so far is one of disappointment at the behaviour of those acting selfishly.
Saying that I have also however heard great stories of people chaperoning older shoppers to the toilet paper isle, delivering goods to friends, family and strangers and showing what good humans are capable of.
My biggest concern is for the welfare of those friends and family members of ours who actually can’t fight this on their own, that lack an immunity or have conditions that could cause severe complications.
I am also deeply concerned for an unnamed victim of the fear surrounding Coronavirus – the thousands of small businesses that are seeing significant drops in revenue from a fall in customer numbers, and cancellation of major events.
They won't appear in the death statistics, but many cafes, service providers and suppliers may never recover if we don't keep buying from them. Small business is the lifeblood of Australia and the flow on effect will significantly impact employment in the future.
At Lime, we are fortunate to be able to continue doing business over video conference or the phone should we need to isolate, but not all businesses have that ability.
Ringing your favourite restaurant or coffee shop and buying a voucher
Prepaying cleaners, lawnmowers, hairdressers, physios, personal trainers for services later in the year
Shopping at independent grocers, butchers, fruit and veg stores.
Buy something now, that you can use later – while supplying cash flow to everyday Australians that may be doing it tough at the moment
Lastly, I just want to reiterate to every one of my clients
If you are a long-term investor, this will pass – don’t panic!
If you are retired or about to retire, we have set up your portfolio to ensure a 5-year recovery, so don’t panic
If you want to invest more in the market, you can’t actually pick the bottom, so don’t try and if it keeps going down, don’t panic!
PS. Thank you to our heath care workers who are taking this as another day at work, and getting on with it.