Global Markets Update - a simple message for investors
In the words of the Chairman of CARE Investment Group, Emmanuel Calligeris, despite the media hype that’s putting fear into investors and business owners about what the Covid-19 crisis means right now, it is not all doom and gloom.
By ATB Partners
'Controlled' economic slowdown
Yes, we are sliding into inevitable global recession, but unlike the Great Depression of the 1930s and the Global Financial Crisis (GFC) of 2007/08, this is a controlled economic slowdown, necessary right now to save lives.
Federal Government spending on stimulus and the interest rate cuts by the Reserve Bank are two important factors which will ensure the economic fallout can be managed and minimised.
Both will also ensure that Australia is in a good position to recover smoothly and swiftly when the time comes to relax lockdowns and return to some kind of ‘normal.’
It's not all 'doom and gloom'
Governments around the globe are following similar economic strategies for exactly the same reason, and while the international markets have been volatile, investors have no real need to panic.
In fact, China is already showing some positive signs of recovery. The Australian share market too, has experienced a slight upswing over the past couple of weeks in response to news that the death toll is subsiding and the coronavirus is being contained.
… But it is still very much a wait-and-see proposition for the time being, and it’s unlikely we’ll see any more significant movement in the local share market until companies report at financial year end.
In the meantime, there is some real value to be found for anyone considering investing right now – just remember to adhere to sensible investing principles for mitigating risk – by buying across markets and industries (rather than ‘cherry picking’ individual companies) . Keep your portfolio as diversified as possible.
What is absolutely critical to smooth economic recovery is avoiding a ‘second wave’ of Covid-19 infections when the time comes to relax lockdowns and bring sectors of the economy out of hibernation, but the government is well aware of this.
Why this is NOT the same as the GFC or the 'Great Depression'
Remember, our leaders are not having to make rushed knee-jerk, rash decisions based on the uncontrollable market free falls that occurred in the 1930s and 2007/8. There is a well-considered, well-advised macroeconomic strategy here, underpinned by sensible policy.
Changes ahead
And, prior to this, both the global economy and the Australian economy were stable.
In previous recessions there were other negative factors already in play – high inflation and high unemployment in the case of the recession of the 1930s.
In 2007/08 and too much financial risk in the market in – people, particularly in the USA, had large household debt they could never hope to pay. Banks and financial institutions were highly exposed.
It’s important to acknowledge that the strong regulatory backbone of our financial industry meant Australia weathered the GFC better than many other countries. The recent Royal Commission has resulted in even tighter restrictions which will, in these current circumstances, be advantageous.
Since both the Great Depression and the GFC, we’ve learned valuable lessons – these are now being implemented.
The economy has been placed into an ‘induced coma’ – recovery and rehabilitation will take time. Certainly, this is a time to be cautious, but not fearful. The prognosis is good.
All aspects of our lives as well as the way we do business both locally, and internationally will change to some degree, and of course those changes are not easy to predict right now, but change always brings opportunity for those who are seeking it.
So stay positive, stay patient, and keep looking ahead.
If you have any questions or concerns, please give us a call.
The webinar and these comments are general in nature and made without consideration of any specific client’s investment objectives, financial situation or needs. Those acting upon such information without first consulting one of ATB’s advisors do so entirely at their own risk.
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