All things market related March

 

 

The start of 2020 will go down as one of the most volatile months in stock market history after coronavirus fears gripped global markets and bought about a wave of panic selling. From a February high of 7,197 points, the market plunged to a low of 4,873 by the 13 March. At the time of writing the market has closed at 5,002 points.

The coronavirus threw global markets into complete meltdown, as investors offloaded stocks in favour for cash and gold. Whilst Australia is still in its infancy with this virus, on current growth rates, the 400 diagnosed cases today will be 10,000 by April. There is even talk from State and Federal governments of implementing strict lockdown and social distancing regulations, and a ramp up of health resources to cope with a surge in critically ill patients.

And it doesn’t stop there. Everything will be somehow affected. Sporting contests are being played with no spectators. St. Patrick’s Day parades have been called off and music festivals put on hold. Italy in lockdown. A real sense of panic has taken over, confidence is at an all-time low and markets are in free fall as Coronavirus causes the biggest global meltdown since the GFC. The ASX 200 Index endured one of its worst months in recent history, falling some 8.21% due to the rapid spread of coronavirus. Positive gains for the year have now been erased and markets are at the mercy of this virus. The US market also suffered a 10% fall from a record high as fear and panic spreads through global markets. At the time of writing the Dow had fallen a whopping 7.79% overnight and is trading at 23,851 points.

Concern over the spread of coronavirus and its potential impact on global growth was further intensified by a relentless media coverage of the virus which only fed fear into global markets.  Expectations of easier monetary policy globally, are pushing government bond yields lower. The February reporting season was largely overlooked as Coronavirus is dominating basically everything. February’s reporting season ended with more companies missing on expectations than beating and earnings expectation for the coming year were downgraded.

Eurozone markets weren’t immune to the contagion, recording sharp falls that have the potential to send the area into recession. Chinese shares however managed to record a small gain after infection rates appeared to stabilise. It’s a good sign that markets can recover and will recover once the virus is contained in that specific market and/or a vaccine is announced.

The highly disorderly panic selling seen in global markets followed by a frenzy to stock up on toilet rolls, can only be seen as a perfect opportunity to buy a market that has come off its lofty highs and is now looking like fair value. On the flip side, gold, Government bonds and Bitcoin assets were bid higher as investors fled to safe haven assets.

So, if you are thinking it’s the end of the world, it’s not. A vaccine shouldn’t be too far away, maybe even sooner. Central banks are cutting rates to near zero and Governments are printing  via massive  stimulus plans to counter this market weakness. We should also get an anti-viral drug within weeks. 7News had printed an article titled “First test of coronavirus vaccine as outbreak spreads”. If true and proven successful, it could materially lower fatality rates and precipitate a shift in global risk sentiment.

 

From a policy perspective, expect global central banks to cut rates in order to spur economic growth and assist markets. The RBA wasted no time by slashing rates by 25bps this month and may go again in March. The Fed also cut rates by 50bps to help boost confidence and investor activity.

In times of great uncertainty, volatility and confusion, investors need to keep their wits about them and try not panic and to remain calm. There will be a great opportunity to buy just around the corner.

 

Economic News

 

Australia’s annual economic growth rose by 2.2% which was better than expected. The reading was however recorded before the bushfires and coronavirus took their toll. The OECD did however cut 0.50% points off Australia’s economic growth this year due to the coronavirus.

Chinese PMI figures for both the manufacturing and services industries revealed grim figures and deteriorating sentiment. China’s services PMI fell to 26.5 in February from 51.8 in January and China’s Manufacturing PMI fell to 35.7 from 50 the previous month as the coronavirus has caused a reduction in business activity with factories and retail shops closing across the country.

JP Morgan research