Market Update - June 2020

Share markets have remained surprisingly resilient in recent times despite being faced with the worst economic conditions in around 80 years and the worst pandemic in a century. Against this, we are seeing the largest amount of support from Central Banks and Governments. It is the belief and optimism that the support is effective and will continue that is winning the day, for now anyway. 

However, the fragility of markets has been demonstrated recently by large falls in response to the continued growth in virus infections and the risk of a resumption in the trade war. 

The consensus view was that virus infections would have peaked in May, however, instead, they continued to rise and have done so again in June. This contributed to a recent 5% sharemarket fall in the U.S. in one day. Another consensus prediction that is being tested now is that the virus would diminish in the Northern Hemisphere summer.  According to Bloomberg on 24th June, “Anthony Fauci, the U.S.’s top infectious-disease doctor, warned on Tuesday that the coronavirus isn’t taking a summer break, judging from its persistent spread in the U.S. Sun Belt”. 

In relation to the trade war, a comment by U.S. Adviser Peter Navarro was interpreted as saying that the Trade Deal with China was over. This saw the Australian share markets fall 2% in 20 minutes. The statement was corrected very quickly, and the markets recovered. It is concerning to think about what would have happened if the statement wasn’t corrected.

Our position remains that while a share market recovery was expected, the strength of this recovery makes little sense and is unlikely to be sustainable until there is certainty around the virus and the economic impact. 

For this reason, we remain relatively defensively positioned in both portfolios. We expect to be able to move to a greater allocation to growth assets in the weeks and months ahead. 

DMG Diversified Portfolio: 

May saw the DMGDP deliver 1.73% after fees for the month. This is another good result after April and also providing good protection in March. The portfolio is mostly operating in line with our objectives and expectations. As detailed in the report and previous updates, we are a little more defensively positioned than normal, however, this was beneficial in March and will be if or when the markets fall again. 

Clearwater Dynamic Portfolio: 

A gain of 2.68% after fees was produced by the CDP in May. This was very pleasing, particularly as we hold above our target levels of cash due to new investments continuing to flow in. We plan to allocate this to growth assets in the weeks and months ahead. 

We will continue to provider further updates. As always, contact your Financial Advisor if you wish to discuss this in more detail.