INVESTMENT UPDATES

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March 30, 2020

WEEKLY INVESTMENT UPDATE

Key points:

  • Policymakers continue to put in place measures to offset at least some of the downturn. Britain, Canada, and Denmark put in place a wage guarantee, with Canberra considering the same.

  • Westpac and NAB Economists forecast unemployment in Australia will rise to 11% – 12%.

  • The share market reflects an anticipated one-off hit to earnings of around 20%. That seems too optimistic, suggesting that the recent equity market bounce is likely to be temporary.

  • Comparing the current economic shock to the 2008 financial crisis, there are some positives that can be drawn. If indeed wage guarantees are implemented and noting the decisive central bank measures already in place, the global recovery would have been much swifter. On the other hand, the scale of the economic impact may be much greater.

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March 23, 2020

WEEKLY INVESTMENT UPDATE

Key points:

  • Last week saw the biggest falls in listed Property and Infrastructure as the market tore up earnings expectations for some. We only have small weightings within most portfolios.

  • Bargain hunters moved in on markets and some were punished quickly as things went south again.

  • Unprecedented times call for unprecedented measures: The first major restrictions on movement and social interaction are now being implemented in Australia and the US.

  • Capital markets remain volatile and dislocated, despite widespread central bank intervention. More is likely required to prevent massive unemployment, business closures and, by logical extension, further equity market losses.

  • The Australian approach so far centres on providing some financial support for businesses and helping to “bridge the gap” until after the worst of the outbreak has subsided through additional debt.

  • Working through various examples, and taking into account the increased jobseeker allowance, it seems much more likely that businesses would choose to reduce headcount, or at least to stand staff down for a period. The US and UK are providing different solutions that provide payments direct to workers and households. We expect Australian unemployment to surge unless another solution is launched quickly. In this scenario, a deep and long recession would be likely to follow. Canberra has promised more stimulus, but the nature and timing of the next steps are unclear.

  • We predict a lot of volatility over the coming week/s, but stand firm in our portfolio make-up to continue to achieve medium and long-term goals for our clients.

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March 16, 2020

WEEKLY INVESTMENT UPDATE

Key points:

  • Our outlook has changed: It is no longer possible to contain the COVID-19 pandemic and European and US national strategies have evolved into mitigating the consequences. Australia is likely to be next.

  • This implies that a “V-shaped” recovery is no longer the most likely scenario. It is more likely that the global economy will experience a “sudden stop”, with a sharp slowdown in GDP and business failures.

  • Avoiding a protracted depression even greater than the GFC will likely require extreme monetary support, and fiscal spending on a massive scale. Germany and the US are providing loans direct to businesses, which may prove to be successful at avoiding permanent reductions in productive capacity, but will leave balance sheets in worse shape. The Fed has, this morning, dropped their federal funds target rate to 0-0.25%. This highly unusual step sends a strong policy message and the Fed should be applauded. But, this is the minimum required. Broad government measures will need to follow to prevent defaults and permanent impairment of operating capacity.

  • In Australia, the inflated housing market leaves the economy particularly vulnerable. Federal and State governments will be required to do more fiscally to avoid the worst scenarios.

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March 9, 2020

WEEKLY INVESTMENT UPDATE

Key points:

  • A rollercoaster ride for investors last week as equity markets volatility remained elevated and bond yields reached record lows in the US.

  • Heavy losses on the local share market, ASX, this morning with volatility (the VIX index) hitting fresh highs. This is most likely due to those who were holding ‘long’ positions in Australian Shares unwinding those positions. Relatively speaking, our portfolios continue to hold up well.

  • We saw a raft of policy measures last week, including interest rate cuts from Central banks including the Fed, RBA, Bank of Canada and others. With corporate earnings downgrades slow to materialise, it seems likely that equity market losses will continue, although the magnitude is impossible to predict.

  • We see potential for the AUD (Australian Dollar) to rise against the US Dollar, despite global risk appetite remaining extremely weak.

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March 2, 2020

WEEKLY INVESTMENT UPDATE

Key points:

  • A ‘technical correction’ (of 10% or more) on share markets globally last week as the coronavirus fears and cases increase.

  • The ASX is off by 2.5% this morning, and we anticipate further volatility this week.

  • Over the weekend, China released the worst PMI (Purchasing Managers Index) on record. This reflects the shutdown of industry, public transport, schools, and workplaces, which is one of the key factors affecting confidence, the short-term economic outlook, and the share markets.

  • The RBA meets on Tuesday this week with the market expecting a 0.25% cut.

  • The Fed (US Federal Reserve) is next due to meet on 18th March, has issued a statement on Friday that it will “act as appropriate to support the economy.”

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February 24, 2020

WEEKLY INVESTMENT UPDATE

Key points:

  • Australian share market set to drop after new coronavirus cases reported outside China saw the US market (S&P500) drop over 1%

  • Corporate reporting season is almost done and more volatility looks likely, although some 'less’ bad than anticipated results saw Westpac and AMP rise.

  • The Aussie dollar continued its slide, now 7% down against the US dollar year on year.

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