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Special investment update: 3 March 2020

Spread of Coronavirus

Since the Chinese authorities announced publicly the existence of COVID-19 (coronavirus) on 31 December 2019, the disease has continued to spread, initially within China, and mainly within the epicentre of the outbreak, the city of Wuhan and the province of Hubei in which the city is located. However, over the past few weeks, the number of cases outside of China has increased significantly, sparking concerns that the outbreak may become more widespread and even evolve into a global pandemic. 

Investment market response

Global share markets have enjoyed strong double-digit gains over the last year and valuations have appeared stretched across the board, indicating a high risk of a correction.  The increasing fears around coronavirus have provided the trigger with market volatility increasing significantly over the last week and most major share markets around the world falling around 10%. This has spooked investors. The US market bounced back at the start of this week up almost 5% on Monday, continuing the wild ride for investors.


What we do know is that investment markets are always being tested by negative events and shocks and that volatility in markets is to be expected. 

Our views

Firstly, we acknowledge the human tragedy that is the COVID-19 (coronavirus) outbreak, which has taken around 3,000 lives and infected 80,000 people worldwide. The current situation remains highly uncertain as it spreads around the world and what happens from here depends on how long it takes for the outbreak to be contained. We don’t know when this will be but it is clear that the outlook for global economic activity and financial markets in the short to medium term has undoubtedly worsened considering recent events.  Some estimates suggest that as much as 50% of China’s economy has been locked down for the last three weeks and is expected to result in a contraction in global demand and sustained disruptions to global supply chains.

What we do know is that investment markets are always being tested by negative events and shocks and that volatility in markets is to be expected.  Over my time in investment markets (and it’s been a while) I have seen all types of events that have rattled markets in the short term – these have included the ‘recession Australia had to have’ in the early 1990s, the Asian crisis, the tech bubble, the 9/11 terrorist attack in the US, Brexit, Donald Trump being elected US president (!!) and the GFC.  All these events resulted in market falls that were painful at the time for investors. The chart below shows that markets bounce back after negative events like these and in the long-term scheme of things they are ultimately just short term ‘noise’.


Growtth of $10,000

Super is a long-term investment so the best course of action at a time like this is to not over-react to this short term market ‘noise’.

How is this affecting your super and what should you do?

Superannuation balances will be impacted in the short term by the market volatility and this might concern some members.  It is important to remember that we have well diversified investment options that combine less risky assets like cash and bonds with equities to cushion the blow of sharemarket falls like we have had.  Super is a long-term investment so the best course of action at a time like this is to not over-react to this short term market ‘noise’.

Finally, if you have concerns about your super and want to speak with someone, please contact us or seek independent financial advice.

 

Important information about investments

Any advice contained in this communication is of a general nature only, and does not take into account your personal objectives, financial situation or needs. Prior to acting on any information, you need to take into account your own financial circumstances, consider the Product Disclosure Statement for any product you are considering, and seek independent financial advice if you are unsure of what action to take.