Market Review

March 2020

Given the current pandemic, which is without comparison for over 100 years, it will be no surprise that share market performance was particularly poor in March. International share markets were more than 8% weaker on an unhedged basis, while the Australian share market dropped by more than 20%. International share markets on an unhedged basis did not fall as much as the Australian market due to the Australian dollar (AUD) also weakening, which benefits Australian investors with foreign assets. This includes those who invest through their super. Bond markets failed to significantly dampen the falls in share markets, with bond yields fluctuating wildly as investors struggled to digest both the impact of the coronavirus as well as the huge amounts of government stimulus being announced. We expect markets to remain volatile for the months ahead as the impacts of the forced business shut-downs and isolation begin to hit economies around the world.

Coronavirus outbreak spreads in Europe and the United States

Although we started to see the coronavirus outbreak impact share markets in late February, March saw a significant worsening in share market conditions as the rapidly growing number of infections in Europe and the US saw share price volatility spike and global share indices fall, at an astounding pace. The US S&P 500 Index fell by more than 12% while European shares fell 16%. This came after both markets fell by more than 8% in February. Overall, international share markets were roughly 13.4% weaker on a currency hedged basis, but after taking the sharp fall of the Australian dollar into account the result was slightly less disappointing in unhedged terms, down 8.3%. The Australian dollar spent some time below the 60 cent mark before recovering somewhat, revisiting levels not seen since the Global Financial Crisis (see chart below).

Downturn in Chinese economy affects Australia

The virus has had a considerable effect on the Chinese economy, with data showing that manufacturing reduced significantly in February (before bouncing back in March) as the government took measures to prevent further spread. This, coupled with Australia’s significant trading relationship with China contributed to a greater than 20% fall in the Australian share market. Certain sectors were relatively defensive during the month however, with consumer staples stocks such as Coles and Woolworths benefiting from the surge in demand for groceries. On the other hand energy companies suffered markedly as the oil price fell substantially as negotiations between Saudi Arabia and Russia came to a standstill.

Global economies falter, governments respond

In addition to the overall fall in share prices, one of the key reasons why financial markets have been so volatile, moving both up and down so erratically, is the significant amount of uncertainty over both the severity and duration of the economic slowdown due to the spread of the Covid-19 virus. Throughout the month, the number of people being stood down or losing their jobs altogether continued to increase in Australia and around the world, which in turn caused investors to worry about the impact to business profits and hence share markets. Government stimulus such as the $130 billion job keeper support package in Australia provided some support to markets, however unemployment in Australia is expected to increase over the coming months, which will be a drag on the domestic economy. The RBA has cut interest rates, reducing the cash rate to a new low of 0.25% and also announced a three year initiative to encourage banks to provide borrowing to businesses and continue lending during this rocky period.

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’ mode and how deep the fall in economic activity will be. A slowing in the spread of the virus will help shorten the impact on the economy and provide some positive news for investors.


While comparisons between the coronavirus outbreak and previous economic troubles is tempting, the current situation is quite unlike anything else, in a modern context at least. We should expect markets to be volatile for some time yet until economies are able to enter a recovery phase. Nonetheless, it’s worth noting that although the pace of the sell-off has taken investors by surprise, the response from governments the world over has also been swift and will hopefully prove to be highly effective. Regardless of how long this will be, it’s as important as ever to maintain a well-diversified portfolio which suits to your particular financial situation and speak to a financial planner if you have questions in this difficult time.

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1 Bloomberg Finance L.P. Past performance should not be regarded as an indication of future performance.