Investment Update – focus on the long term

Author: Leigh Jobling, Partner, TAG Financial Services

The last 2 weeks have seen fear around Coronavirus (COVID-19) reach new heights with the World Health Organisation officially declaring the condition as a Pandemic.

Equity markets are being heavily sold off due to the potential expected impact on economic activity and world growth. Naturally, corporate profits will be negatively affected which in turn erodes investor confidence.

As we noted in a previous Investment Update blog, given the breadth and length of this issue is not fully known or understood, it’s typical that markets react negatively to such uncertainty.

Share market volatility has been exacerbated by the steep fall in the oil price as Russia and the Middle East flood the oil market with excess supply.

There’s no doubt what we are experiencing and seeing on the news is somewhat confronting, with many countries taking isolation measures and limiting the movement of their citizens and travelers and seeing images of long queues and empty shelves at supermarkets.

Leaders across the globe are making decisions on an hourly and daily basis protecting their borders and the health status of their people with financial stimulus to ensure their countries and the world financial systems continue to function.

This is a health crisis – with an undeniable negative impact on economic activity, corporate and personal incomes and balance sheets and market performance.

This is not akin to the Global Financial Crisis when global liquidity froze and took years to recover to a more normal position. When COVID-19 passes, increased economic activity is likely to increase as people book holidays, go back to the shops and business invest in growth. Governments and central banks are already acting to support economic activity.

No doubt some businesses will fail and many individuals will suffer financial distress. These impacts will take some time to overcome. Depending on the level of loan defaults, it’s possible that a financial crisis may ensue. Again, stimulus packages by Government and reserve banks to support businesses, jobs and livelihoods will be critical.

Its important to focus on the long-term and stay the course. Resist the temptation of following the herd. 

Contemplate the following chart. It clearly demonstrates the risk around selling out and trying to time re-entry.

 

 

 

 

 

 

 

 

 

The chart below shows the rebound of markets (US share market) 150 days after the initial on-set of a significant negative market event.

 

 

 

 

 

 

 

Should you have any queries or wish to discuss your investment strategy, please contact us on 03 9886 0800 or via email.

 

Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page. Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686).