MARCH 2020 QUARTER MARKET OVERVIEW AND MARKET OUTLOOK 2020
By Paul Nicol
We are pleased to provide our Market Overview for the March 2020 quarter and our updated Market Outlook for 2020.
The entire world is facing extraordinary circumstances in the early part of 2020, not only in financial markets but in our daily lives. The spread of COVID–19 has dealt a severe, unexpected shock that impacted people and share markets around the globe. After outstanding returns from share markets in Calendar Year 2019, markets have come back with a thud, with returns in the March 2020 quarter posting their worst results since the Global Financial Crisis (GFC) in 2008.
Index results for the March 2020 Quarter and FYTD (nine months to March 2020) are shown in the table below:
| March Quarter 2020 | FYTD | |
| Australian Shares (S&P/ASX 200 Accumulation Index) | -23.10% | -20.74% |
| International Shares (MSCI World ex–Aus in AUD) | -9.33% | -0.72% |
| A–REITs (S&P/ASX 200 A–REIT Accumulation Index) | -34.37% | -34.40% |
| S&P/ASX Small Ordinaries Accumulation Index | -26.72% | -23.87% |
Other important figures at the end of March 2020 compared to the start of the financial year were:
| 31/03/2020 | 30/06/2019 | FYTD Return | |
| RBA cash rate | 0.25% | 1.25% | -80.00% |
| 90-day Bank Bill Swap rate | 0.53% | 1.29% | -58.91% |
| 10-year Government Bond rate | 0.836% | 1.32% | -36.67% |
| Gold price | US$1574.81 | US$1409.70 | 11.17% |
| Oil (WTI) | US$20.48 | US$54.87 | -62.68% |
| Iron Ore | US$83.90 | US$109.18 | -23.15% |
| Australian dollar | US 61.33c | US 70.13c | -12.55% |
At the time of writing, the full magnitude of the COVID–19 crisis is virtually impossible to predict as entire countries, regions and continents come to an economic standstill. Even the most sophisticated economic models cannot to calculate what it means when people cannot leave their homes, go to work and or to stores, restaurants, movies, sporting events, holidays or just about anything for months on end. These are unprecedented massive shocks to the economy that are likely to reverberate for several quarters.
There are also uncertainties over what society will look like when we get to the other side, given the expected elevated unemployment rate, significant economic hardship combined with unprecedented fiscal intervention exacerbating the issue. It remains to be seen whether people will be brought together by adversity, or further polarized. All of these concerns will shape financial markets in the post–COVID–19 era.
From a policy–response perspective, we certainly have seen many central banks around the world (including Australia) take aggressive actions. This includes the lowering of interest rates to near zero and embarking on asset–purchase programs and other liquidity measures which have had a stabilising effect on markets for now.
In terms of where the equity market goes from here, history suggests markets bottom when there is a sense that the bottom for the economy is in sight. However, it is more complicated this time with unprecedented stimulus and liquidity, which has seen markets rebound. This could either signal optimism over a far quicker recovery from the pandemic than first thought or that the market is getting far ahead of itself. The truth is, nobody knows at this point.
Disentangling emotions and looking at the big picture, it is clear we have just experienced significant market volatility, and short term, we anticipate another few months of volatility as the crisis plays out. Remaining a disciplined investor and even seeking out opportunities as COVID–19 plays out may well prove to be a clever strategy. But for now, diversification is really important in this uncertain environment, as is ensuring liquidity in investment portfolios.