How is world faring against the Coronavirus (a.k.a COVID-19)?

Since COVID-19 was first detected in China, transmission across the rest of the world has been substantial, as have been the number of deaths. There have been over 3.5 million confirmed cases and over 247,000 deaths. However overall growth rates have slowed globally. This raises confidence that the worst is passing and has seen some countries start to relax their lockdown measures including Austria, New Zealand and here in Australia. This is to allow economies to “restart” and gradually get back to normal.  

Source: CSSE at John Hopkins University

In Australia

  • Infections have continued to slow with less than 900 active cases remaining, compared to over 6,800 cases we have experienced as of 3 May.
  • Sadly, we have seen over 90 deaths with aged care residents and Ruby Princess passengers amongst the worst affected.

Government support in the form of the JobSeeker and JobKeeper programs should help workers and businesses weather this period more favourably compared to some other countries. For example, in the US there have been over 30 million workers file for unemployment claims since late-March.

How is the economy going now and in the future?

Coming out of lockdown is only the start of getting back to normal. Government stimulus will help support workers and businesses. It cannot however completely counter the job losses and business closures we have seen. It will take time for both the Australian and the global economy to recover.

Economic growth forecasts

Sources: IMF, FactSet

The above tables show forecasts for economic growth in 2020 and 2021. “FactSet Consensus” is an average of economist predictions while “IMF” refers to the International Monetary Fund, an organisation that helps monitor economies and markets and acts as an emergency lender.

We can see that this year is expected to be a tough one. All economies excluding China are seeing negative growth (a.k.a. a recession). However, on the positive side, assuming the virus outbreak continues to slow down, we should see some form of economic recovery next year.

One factor that might help sooner is progress on the medical front. For example, there are reports that Gilead (a major pharmaceutical company) drug “remdesivir” has shown promising signs of helping infected people recover more quickly. Treatments like this or a vaccine would help substantially in the recovery effort as well as reducing the risk of a “second wave” of infections from relaxing restrictions.

What does this mean for your investments?

At the time of writing:

  • markets have rallied substantially from their lows on 23 March
  • The Australian share market is up 21.5% from 23 March to 30 April this year
  • International shares in AUD terms have risen 12.9% over the same period
  • the Australian dollar also recovered by 13.8% to USD 0.6547.

Arguably investors are pricing in a faster economic recovery on the back of sizeable government stimulus and interest rate cuts. In addition, not all businesses have been hurt. Some have gained strength and seen an increase in demand for products like Netflix and YouTube.

Going forward, it will be difficult to anticipate how markets develop from here. We would suggest a cautious approach remains prudent for the months and years ahead as we will see substantial challenges for the global economy.

In addition, we anticipate:

  • The RBA has signalled only a very gradual unwinding of its policy stance to keep rates low until the economy has materially recovered. This means returns on term deposits and savings accounts are likely to remain weak for the next few years and similarly for bonds.
  • Dividends to remain under pressure even as the economy recovers. Shutdowns have seen some businesses lose customers and have to raise capital to survive. It took dividends five years to recover to their previous highs after the financial crisis as an example of what can happen.
  • Equity markets remaining volatile until we see a clearer path to unwinding lockdowns globally. There are still material risks in countries with poorer healthcare infrastructure to suffer sizeable outbreaks as in fact some are already experiencing.

Importantly though, we believe that in time, our economy and the world will recover. Maintaining your plan even in this latest period has helped. Going to cash early would have meant missing the rally we have seen in April. It is one example for why you should maintain the course regarding long term investing.

Important Information: This report is prepared by the IOOF Research team for:Bridges Financial Services Pty Limited ABN 60 003 474 977 AFSL 240837, Consultum Financial Advisers Pty Ltd ABN 65 006 373 995 AFSL 230323, Elders Financial Planning ABN 48 007 997 186 AFSL 224645, Financial Services Partners ABN 15 089 512 587 AFSL 237 590, Millennium3 Financial Services Pty Ltd ABN 61 094 529 987 AFSL 244252, RI Advice Group Pty Ltd ABN 23 001 774 125 AFSL 238429, Shadforth Financial Group Ltd ABN 27 127 508 472 AFSL 318613 (‘Advice Licensees’).This report is not available for distribution outside Australia and may not be passed on to any third person without the prior written consent of the Advice Licensees

Declaration of interests: The Advice Licensees and/or its associated entities, directors and/or its employees may have a material interest in, and may earn brokerage or other fees from, any securities or other financial products referred to in this report, or may provide services to, do business with or seek to do business with the company referred to in this report. The Advice Licensees and associated persons (including persons from whom information in this report is sourced) may do business or seek to do business with companies covered in its research reports. As a result, investors should be aware that The Advice Licensees or its associates may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as a single factor in making an investment decision. A list of material interests of The Advice Licensees and its associates, and product issuers referred to in our research reports, can be found on the following IOOF website link http://www.ioof.com.au/adviser/investment_funds/ioof_advice_research_process  

The information contained in this report is for the use of advisers of AFSL entities authorised by The Advice Licensees in writing.

General Advice Disclaimer: The information in this report is general advice only and does not take into account the financial circumstances, needs and objectives of any particular investor. Before acting on the general advice contained in this report, an investor should assess their own circumstances or seek advice from a financial adviser. Where applicable, the investor should obtain and consider a copy of the prospectus or other disclosure material relevant to the financial product before making any investment decision to acquire a financial product. It is important to note that the price or value of financial products go up and down and past performance is not an indicator of future performance.

Analyst Certification: This report has been prepared and issued by the IOOF Managed Funds Research team members, who certifies that: (1) all of the views expressed in this report accurately reflect his or her personal and professional views about any and all of the subject securities or issuers; and (2) no part of his or her compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed herein.

The writers, and/or entities in which I have a pecuniary interest, None.

The Advice Licensees believe that the information contained in this report has been obtained from sources that are accurate but has not checked or verified this information. To the extent permitted by the law, The Advice Licensees, its related bodies corporate, its directors, officers, employees, authorized representatives and agents accept no liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of the information contained in this report, or in relation to, the contents of or omissions in this report.

This report is current as at the time of publication but may be superseded by future publications. You should confirm the currency of this report and obtain summary information about: material interests and Research analysts’ holdings; the qualifications and experience of the IOOF research team; and the coverage, criteria, methodology and spread of ratings from http://www.ioof.com.au/adviser/investment_funds/ioof_advice_research_process  

If an investor requires access to other research reports they should ask their adviser who can obtain these from their dealer group intranet.