With spring now upon us, we look ahead with optimism and hope - especially as early signs begin to emerge about a successful COVID19 vaccine. Share markets have had a spectacular rebound from their March lows. Unbelievably, the rebound led by the US share market has recently eclipsed its February high – making it the fastest recovery of this type on record. Other major markets have lagged, but are considerably higher than their lows. A common concern is that the rebound may be irrational – especially given that many economies around the globe have collapsed.
Numerous risks remain, with coronavirus yet to come under control in many countries. However, there are more than 100 vaccine candidates around the world working on a vaccine. 20 of these are in clinical testing - with six in phase three trials. Early indicators suggest that all six are likely to make it through phase three trials with a few having the ability efficiently scale production. Assuming phase three success, we should begin to see economic re-opening and travel.
Extraordinary government and central bank stimulus has supported investor sentiment and asset price inflation, particularly equities and corporate bonds. Both governments and central banks have made it clear that they will keep providing support until there are clear signs of a sustained economic recovery. That support means direct payments to households and businesses, cash rates at zero, and very low borrowing costs for governments and corporates.
Government support will need to be adjusted in 2021 as the current pace of direct handouts cannot keep going. But the government has plenty of tools in their toolkit including labour market reform, tax reform, re-education / retraining of the workforce and infrastructure to name a few. ABC news also released Interesting data which illustrates how the different states spent their stimulus payments.
Interestingly the graph shows that New South Wales residents were more likely to use the money to pay household bills, while people living in South Australia and Queensland more likely to add the funds to savings. Although the market has rallied, opportunities continue to be found. Careful consideration should be applied to Pay Now and Pay Later stocks as they have seen extraordinary growth recently - with some seeing their stock price increase by over 500%. These types of investments may continue to see more upside, however unless they can continue to “shock” the market with strong customer growth, their share price will come under pressure. The Reserve Bank meets later this afternoon, where it is widely expected that rates will remain on HOLD. With interest rates remaining low, various stimulus payments on offer, property should continue to see robust activity for the remainder of 2020.
From a medium to long-term investment perspective, there are a few mandates and considerations we always apply when formalising an investment strategy. Risk of loss is always considered and to help manage this we look to diversify assets in a range of investments (term deposits, shares, property, gold, cash and bonds to name a few). Not only does this provide the platform for growth, it also reduces downside risk which helps to keep our clients strategies on track. Added to this we also subscribe to various demographic trends both in Australia and around the globe to ensure our recommendations remain well positioned. Synergy Private Wealth