Investment Update 2020: Edition 2

Investment Update
Market overview as at 31 March 2020

After a very strong year for both share and bond markets in 2019, and indeed in years prior, equity markets slumped in the March quarter, for reasons very few would have foreseen.

The magnitude of the effect of the Covid-19 outbreak saw prior concerns such as US/China trade tensions and the progression of Brexit swept aside, at least temporarily.

The Australian dollar fell by over 10% and spent some time below the US 60 cent mark before recovering somewhat, revisiting levels not seen since the Global Financial Crisis.

The Australian share market fell by approximately 23.1% over the quarter, though some sectors fared better than others. Consumer staples stocks such as Coles and Woolworths and health care companies benefitted from increased demand while on the other hand energy companies suffered markedly as the oil price fell significantly.

Bonds performed well over the quarter but not without substantial volatility as investors weighed up the deteriorating economic outlook with the positive impacts of government stimulus and central banks around the world cutting interest rates to boost economies.

Covid-19 impact dominates markets

The signing of the US/China phase one trade deal in mid-January, and Britain’s formal withdrawal from the European Union at the end of January were both significant steps to resolving two long-running issues which had been troubling markets. Indeed, share and fixed income markets rose in January, but the significance of these moments was greatly overshadowed by the rapidly escalating outbreak of Covid-19 in China and the subsequent global pandemic in March. Other focal points such as the 2020 US Presidential Election seem to have been forgotten for the moment as employees and business owners adjust to forced lock-downs and the standing down of employees.

Recent panic buying of groceries as well as the reluctance initially (and later inability) of people to visit restaurants and travel, hint at the real impact on economies. This is essentially one of investors’ key fears: that while the primary impacts of the virus may be containable, the flow-on impact on labour markets may cause significant economic damage if lock-downs continue.

Governments act as shock absorber

In addition to the overall fall in share prices, one of the key reasons financial markets have been so volatile, moving both up and down erratically, is the significant amount of uncertainty over both the severity and duration of the economic slowdown due to the spread of Covid-19. It’s difficult to know at this stage how long the current slowdown will continue for, but governments are hoping that going hard now with tough lock-downs will help shorten the period of economic pain and provide for a sharp recovery once the virus is contained.

There have been large job losses in the US in March, and although we are yet to see Australian labour force data, we expect to see the unemployment rate spike in March and perhaps beyond. In late March, government stimulus such as the $130 billion Job Keeper package in Australia provided some support to the economy and investment markets. Furthermore, the RBA cut the cash rate to a new low of 0.25% and also announced a three year initiative designed to help banks continue to lend to businesses requiring short-term support. At the very least it seems both the government and regulators recognise the stresses small businesses are likely to face in the coming months and are taking steps to address the issue.

It is an almost certainty that most developed countries around the globe will fall into recession over the next six months and share markets have taken this into consideration in their current pricing.  The key to the outlook for markets is how long economies will be in lock-down and how deep the fall in economic activity will be. Government intervention will lessen the immediate blow to the global economy, though this will also mean rising government debt which must be paid back at some stage in the future. In the shorter term however, a slowing in the spread of the virus will help shorten the impact on the economy and provide some positive news for investors.


EISS Super

Performance History

1 mth (%) 3 mth (%) FYTD ** 1 yr % (pa) 3 yr % (pa) 5 yr % (pa) 7 yr % (pa) 10 yr % (pa)
*Please note prior to 18 November 2019 the EISS Super default MySuper investment option was the Conservative Balanced option
**FYTD means Financial Year to Date starting 1 July.

EISS Pension

Performance History

1 mth (%) 3 mth (%) FYTD * 1 yr % (pa) 3 yr % (pa) 5 yr % (pa) 7 yr % (pa) 10 yr % (pa)
*FYTD means Financial Year to Date starting 1 July.

Retirement Scheme

Performance History

1 mth (%) 3 mth (%) FYTD * 1 yr % (pa) 3 yr % (pa) 5 yr % (pa) 7 yr % (pa) 10 yr % (pa)
*FYTD means Financial Year to Date starting 1 July.