Investment markets have reacted dramatically over the past couple of weeks. Share market losses have been significant – the U.S. market is down almost 20% since 21st February 2020, while the Australian market has effectively given back all gains made in 2019. The reasons behind these falls are two-fold:

  • Increasing fears as coronavirus (COVID-19) becomes a global pandemic.
  • An escalation in tensions between oil exporting countries (specifically Saudi Arabia & Russia) threatens to flood the market with additional barrels of oil at a time when the outlook for global growth is already under pressure as a result of COVID-19.

The global economy is highly likely to shrink in the March 2020 quarter and many companies will be reporting lower than originally expected revenues and profits than previously anticipated.

While the rapid fall in share market has been daunting, there are 3 key things investors should bear in mind:

  1. History has shown that markets have the ability to recover from significant downturns. Australian shares have returned over 9.7%* per annum since their post-Global Financial Crisis low point, even including the recent market falls. So while the coronavirus is clearly impacting the global economy now, in the long-term this impact will most likely fade.
  2. As COVID-19 continues to spread around the world it is very likely that all markets will continue to be volatile. But for those investors with surplus cash and/or those who are making additional investments through superannuation or savings plans, this may present buying opportunities that may serve well for the long-term (i.e. 5 or more years).
  3. For investors that are currently fully invested, trying to market time in and out of the share market is usually not the wisest course of action. Time out of the market often results in unnecessary losses and a long-term approach is typically best.

 

Where to from here?

The chaos happening in grocery stores across the country, with consumers panic buying household staples like toilet paper and pasta, is a type of irrational behaviour that humans often exhibit in investment markets too. That is, many investors often recklessly sell shares at any price in an effort to alleviate the uncomfortable feelings of anxiety that maintaining exposure in these challenging markets can bring.

While it’s perfectly normal to feel uncomfortable in this environment – the challenge is to not let fears around what’s going on in the world to derail you on your path to achieving your goals. In this regard, it is important you look beyond the emotion and noise conveyed in daily media reports and to remain focused on your longer-term objectives during these times of market turbulence.

 

*Index used is the S&P/ASX 300 Accumulation including dividends. Return from market low point of 29 February 2009 to market close 9 March 2020.

The information and any advice in this article does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. When considering whether to acquire a financial product, before making any decision, you should obtain the relevant product disclosure statement.

Any outlooks or projections in this article rely on assumptions as stated, however actual results may differ materially from these projections. Past performance is not a reliable indicator of future performance. This article may contain material provided by third parties and is given in good faith and has been derived from sources believed to be reliable but has not been independently verified. To the maximum extent permitted by law: no guarantee, representation or warranty is given that the information or advice in this article is complete, accurate, up-to-date or fit for any purpose.