Author: Leigh Jobling, Partner, TAG Financial Services
What a difference 6 weeks makes.
6 weeks ago, many advocated that we were going to avoid a recession, yet the share market was falling through the floor. Now a deep and protracted world recession is a given (unemployment is skyrocketing, and negative global growth numbers are dramatic), yet share markets both here and internationally have begun to recover.
How is this so?
As we discussed in a recent investment update blog, share markets and investors hate uncertainty. If the future is unclear, we either sit on our hands and “wait and see” or take the more conservative approach and “cash in our chips”.
Despite the serious nature of the world’s health crisis and the devastating impact it is having to businesses and individuals and overall economic activity, share markets appear to have responded well to economic stimulus packages announced by governments and central banks, as well as moves to relax some restrictions imposed due to Coronavirus.
Both these have helped to settle the nerves and give some sense of the light at the end of the tunnel but beware of complacency.
A word of caution
We know from past pandemics the second and third waves can be worse that the first. See below a chart of deaths from Spanish Flu in NSW in 1919. The second wave in June/July was more severe than the first in April/May:
While we are all itching to catch up with friends and family, go out for dinner, and see Richmond win another flag, the relaxing of restrictions will need to be gradual (especially coming into the colder winter months). We will learn a lot from other countries over the coming 2-4 weeks as well as other states that are easing restrictions more quickly.
The last thing anyone wants is a second or third wave worse than the first. To ensure the curve stays as flat as possible, it is reasonable to suggest Coronavirus will be with us in some capacity for at least the duration of 2020 and going into 2021.
Economic stimulus packages, while a shot in the arm to business and individuals only last so long. It remains to be seen whether current initiatives will see us through, or more will be required. Business can only “hibernate” for so long – unfortunately for some businesses the pulse will eventually stop.
Share markets may reverse their recent recovery and move lower if it becomes apparent that further stimulus is required but either unaffordable or ultimately ineffective. Investors will be looking for more signs of slowing pulse and falling blood pressure.
What can you do?
- Reflect on what is important to you and how you spend your money. You may have saved money more recently in areas you can continue to save post-crisis.
- For those with either surplus cash holdings or general cashflow, we are comfortable for clients to regularly invest modest amounts in the share market, taking a long terms view – history will say that this was a reasonable time to be buying.
- Know your cash position – for retirees maintain 2 years of living expenses in a “cash bucket”.
- For those who are working, ensure you stay liquid with cash reserves or debt facilities for that potential rainy day.
While we all look forward to getting to the other side of the health crisis – this to will pass. The economic effect will resonate much longer (10+ years).
Whatever happens, TAG is here to support you and your family. Please take care, stay safe, enjoy your time with those in your household and stay connected where you can with work , family and friends.
Please work hard to maintain your mental health – without that we will miss the recovery we all deserve to enjoy.
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). Copyright 2020. Please do not reproduce without the expressed written consent of the author.