Peter Jordan – Senior Financial Advisor
I seem to be doing a lot of reading and writing of late, and hopefully, the messages we are providing to you are helping and informative.
On Saturday, Friday in the USA, Russell Investments issued their normal weekly Market Week in Review broadcast. It normally takes the form of a video release, involving a couple of their senior people filmed in their Seattle office discussing key economic issues of the past week.
On Saturday, the broadcast took the form of a voice broadcast, delivered from the homes of the 2 senior staff members, who are now confined to their homes as Seattle is in lockdown. Schools are closed as are many other services and businesses including all restaurants and other places where the public normally gather in greater numbers.
Over the coming weeks, it is likely there will be increased news time allocated to the likelihood or otherwise of a Global Recession. It seems that such an occurrence is now almost unavoidable.
However, on the positive front, a recession normally brings a fall in equity markets of about 20 to 30%. The US market is already down 30% plus, as is our Australian share market. Given this is the case, Russell Investments argues that a recession is already fully priced into the market.
Russell Investments is watching 3 key things over the coming weeks – the spread of the virus and intensity of the spread, the Government responses to the virus and the perceived effectiveness of the responses, and the actual effect on the economy, of both the virus and the responses to the virus.
Their expectation is that the next unemployment numbers in the US will provide some guidance on the impact of the shutdown that is happening across the country, and the unemployment benefit applications are expected to exceed those experienced during the downturn of 2008.
However, whilst they are less confident of a V-shaped recovery, they remain reasonably confident of a U shaped recovery which essentially means the recovery continues to be expected to be strong, but a little slower in eventuating.
I have been asked how long this will all go on for. Impossible to tell. But, Government assistance packages being offered in Australia seem to indicate a time frame for the need for assistance of about 6 months. There’s always a chance that this could be extended, but we need to remember this is a virus that thrives best in winter, so 6 months would seem to be a reasonable timeframe.
All portfolios are built with a view to the medium to long term. Most decisions made by fund managers to invest in certain assets are made with a medium to longer-term view in mind. We do not take on clients who are looking for quick profits because it is a highly risky game, and it is contrary to the way most funds operate.
I appreciate this is not a normal time for any of us, and extraordinary steps are being taken by Governments around the world to help us all deal with it, and help businesses to cope.
Finally, over the last few days, there have been a number of announcements about Government support for businesses and individuals, and some of the announcements related to the relaxation of Superannuation and superannuation pension rules. None of these items have yet been legislated, but it is likely they will be considered by the Federal Parliament on Friday if not before. Once the final legislation is enacted, we will pass on the details to those to whom it applies.
I’ll be in touch soon with any further updates.
Senior Financial Advisor