Market Update - April 2020
The last week has seen share markets recover some of the previous losses. This often occurs when least expected during bear (falling) markets. These are relief rallies or bear market rallies. Of course, the unprecedented stimulus has also had a significant impact.
Not all companies have benefited from the recovery. Oil, property, travel and retail companies, and those in related industries have all struggled. Small companies are still show mixed results. Infrastructure stocks were initially sold off with everything else but have recovered reasonably well.
It is very difficult, if not impossible, to believe that the worst is behind and that financial markets are on the way to recovery.
Keep in mind that Governments are making the correct decision of prioritising our health and safety ahead of the economy. This is a key point; we can’t have both, and the right choice means that there will be negative consequences for the world economy. The restrictions on our movement are going to lead to a recession and potentially a significant one.
What about the stimulus? It will definitely help and reduce the impact of what would have otherwise been much worse and possibly more so than the GFC.
Good news:
The infection rates in Italy appear to have reduced. There have been some false starts there, but the infection rate overnight our time was less than the number almost two weeks ago. This gives the rest of the world some hope, although we shouldn’t forget how dire the images we have seen from Italy have been on the path to get to this point.
The financial stimulus will help.
Central Banks are also supportive.
The USA have extended their social distancing until the end of April.
Concerns:
How much more Government stimulus can there be. Our Treasurer has said there would be more but not as big as those already seen. Trump is talking about another package that will focus on Infrastructure.
The infection rate in many countries continues to rise at an increasing rate.
The news from the US this morning was to send a message that if not enough action is taken, there could be over one million deaths (yes deaths not infections). If they managed it well, they expect to reduce the number of deaths to between 100,000 and 200,000 over the next two weeks alone.
There will be company bankruptcies around the world. This has a negative impact on financial markets. Virgin have asked for a bailout from our Government, and many retailers will never come back from their recent closure.
Looking a little further ahead and also long-term, how will all this stimulus be repaid? The Governments of the world need economic growth to recover to a reasonable level. This will not come easy. It looks like low-interest rates are with us for a while, which is bad news for those relying on Term Deposits.
Most analysis points to infection rates peaking some time in April, both here and overseas. When this happens, it depends on how far along the curve each country is and the effectiveness in fighting the spread.
In relation to markets, the normal and logical next phase is for more falls, before another recovery. This process is usually repeated several times, but nothing is certain as this crisis has demonstrated.
The updates for each portfolio, including the performance from the first to the 27th March, are below. But first some context. The results for key markets for the same period are;
Australian Sharemarket top 200 companies lost 24.32%
Australian Property Trusts lost 39.19%
Overseas shares lost between 9.67% & 15.09% depending on the currency exposure.
DMG Diversified Portfolio (DMGDP):
We have seen a loss of only 8.57%. As we always say, a loss is never pleasing but we are very happy with the level of protection from the worst of the losses.
Also, the decision to recently sell some holdings has so far proven to be correct. We are now considering options to gradually reinvest.
Clearwater Dynamic Portfolio (CDP):
As expected, this fund has lost a little more but still only 11.75%.
We continue to build up strong cash holdings and are gradually putting these to work at the lower prices available.
While we are pleased with the value we have delivered to date during this extremely challenging period, we continue to carefully review all of our holdings and are having many meetings internally and with our managers.