Since the stock market peaked in Australia and around the world in mid-February markets have fallen due to the devastating economic and health impact of countries going into lock-down around the world. There has been significant panic selling and large market moves on a daily basis as we confront a virus spreading on a global basis quicker than ever before.
It’s not just markets feeling the effect with all of us now grappling with the physical and emotional impact of being forced to stay home and keep our social distance.
This has understandably created great concern for all of our clients, with vastly differing impacts from retirees seeing asset values drop to our younger workers with significant doubts about future livelihoods. We understand the anguish that is impacting everyone in different ways.
Our team is working hard to minimise the impact on you financially and will be working through your personal situation to ensure you are positioned effectively to come out of this as strong as possible. These crises do end and always seem very dark when you are in the middle of it. We have seen through every crisis and market correction that sticking to your strategy and managing what you can control yourself as best you can, will be what sees you through.
The first step of this strategy has always been to maintain quality investment portfolios that will hold up under significant stress. Your portfolio of active managers is performing far better than the index in this period, reducing losses and protecting your assets. You have a diversified portfolio that does not have everything in Australian shares and property. Most of you also have a significant amount of your portfolio in defensive assets such as bonds and cash which are holding up well as they are expected to do in this period. This has helped reduce the impact and for example a balanced investors portfolio has dropped by less than half of the market and will recover quicker as well.
With a focus on holding quality companies with low debt and strong revenues our share funds are doing what we expect. In particular the Antipodes global fund has been the best international share manager since the peak of the market due to its focus on protecting client’s money and an overweight to Asian shares. Across our portfolios we have a very significant overweight to Asia and these countries are faring far better than their western counterparts at this time. This is due to better management and experience with this type of pandemic as well as being significantly cheaper before the crisis with stronger long term growth prospects.
It is also worth noting that this shutdown will impact all companies differently. Media will continue reporting vigorously on lay-offs and companies suffering the most, however Australia has a large and profitable health sector whose earnings and future outlook remain barely changed. The resource heavyweights of Rio Tinto and BHP will have a drop to production however many mines remain open and the price of the commodities such as iron ore remain strong and will allow these companies to bounce back after the lock-down. China is also spending huge sums on infrastructure which will support our commodities and exports in coming years.
Another positive point is Australia looks to be faring better than most countries with rate of infections not advancing at the crippling rates as they are in parts of Europe and the US. We also have a great health system that is holding up well and allows the government some flexibility in keeping us from the worst of lock-downs to date. Limiting the time that businesses are forced to close will be the single most important factor in reducing the economic impact both short and long term.
This health crisis will last a significant period of time before it is completely under control around the world however you are seeing countries such as China and South Korea starting to resume some businesses. We are likely to have restrictions for an extended period but if the curve continues to flatten in Australia we could come out of this earlier and better than predicted.
The economic impact will be unprecedented and we haven’t seen the numbers come through yet but it is important to remember that markets anticipate and look forward. For that reason once we see the worst of these numbers reported, markets will already be on the way back up. We will continue to monitor your portfolios and will work with you on your strategy in the coming months to ensure you navigate your way through this crisis.
If you have any questions about your portfolio and circumstance, please do not hesitate to contact your Altitude Adviser.
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