March 18, 2020

March 18, 2020 | Adviser News


Zurich Investments COVID-19 Economic Update

Matthew Drennan, Head of Savings and Investments at Zurich Investments

Following the longest equity bull market in history which pushed many asset prices well into expensive territory combined with continuous economic growth in Australia since the 1991/92 recession, the impact of COVID-19 has seen the explosive re-emergence of the fear factor in both financial markets and everyday life. In financial markets probably the best indicator of this has been the VIX (or fear) index which measures volatility in equity market prices. While it was rare to see this above 20 in the last decade, it spiked to 83 on 15 March 2020.  In everyday life I guess the best indicator is the run on toilet paper; ironic since the vast majority of this is manufactured in Australia and any severe shortage is very unlikely.

While no-one can control financial markets, you can control how you react to them. Those of us who have been in this profession for a quite a few decades have seen several severe corrections / bear markets before. Each time the recovery inevitably follows as what were expensive stocks become ridiculously cheap and bargain hunters enter the market. This time will be no different in that respect, albeit the cause is. Of course, the timing of any recovery is unknowable, but what we do know is this:

  • Governments and central banks are throwing staggering amounts of money at the problem.
  • Financial markets appear to see recent measures as the authorities panicking rather than responding sensibly. I tend to disagree.
  • As a result, investors are selling what they can sell easily rather than holding the line.
  • Ridiculous long-term value is emerging on even a one or two year view. CBA for example is currently trading on a gross yield before franking of just under 10% in an environment where 40% of the world has negative cash rates.
  • Short lived shocks are usually followed by a sharp rebound in financial markets as the liquidity flows into asset prices well before the real economy.

I want to reassure you that we at Zurich Investments are monitoring the situation closely and working with our strategic investment partners to ensure we are getting the best information available across both local and global markets. We will endeavour to keep you informed with a regular update from our Investment Specialists, available on our website, and which you can access here. In the meantime, please reach out to your Zurich Investments representative if you have any questions.

Finally, it pays to remember the Chinese character for “crisis“ is made up of two characters – one representing danger, the other opportunity. Stay safe everyone.

 

Regards
Matt