Posted 24.05.2020 in Company News
It’s been a while since we gave you an update on the state of play in respect of how Covid-19 is impacting the broader economy, the markets, and our team. In this update we also outline our return to office policy.
Since the beginning of January, the S&P/ASX 200 index has dropped 16.62 per cent and we have seen quite extraordinary levels of volatility as markets sought to price in the risks the pandemic presented. Swings of almost 10 percent in one day are very rare, but such was the uncertainty we have seen a few of them.
It’s a different story in the US, where for the same period the S&P500 index is only down 9.26 percent. This is quite remarkable when we compare the death rate and health outcomes, food bank lines and economic upheaval in the US compared with Australia. It is a reminder that the share market is never directly correlated to the economy.
For the Australian market to have been hit harder than the US is hard to stomach, but it does reflect our high concentration of bank stocks, along with our concentration around the largest ten stocks. Our allocations to overseas stocks have provided valuable diversification during this time.
In the Capital Partners strategies, the exposure to value and small company stocks have weighed on performance and we have been examining these allocations very closely. We are firmly of the view that smaller companies and value stocks now have a higher expected return than larger stocks and we expect they should perform well during a recovery.
Back in Update 5 we discussed the difficulty of timing a sell-down and a subsequent re-entry into markets. Across the board our clients have shown remarkable resilience and have stuck to their plan. Who would have thought the S&P/ASX 200 would stage a 15.4 percent recovery between 22 March when things felt very shaky, and the end of April? These things are so hard to predict.
Similarly, in Update 4 we addressed the security of the allocations we have made to defensive assets. To date these investments have remained very stable and we take great comfort from this – we hope you do too!
That is a tough question. The markets, while still very volatile day-to-day, have priced in considerable good news. Much of the next phase will depend on the confidence (or otherwise) we gain from health outcomes. If we have a second wave of infections our activities will again be constrained, and markets won’t like it. The US is the place to watch.
Economically, the job-keeper in Australia and equivalent benefits overseas, have placed a floor under the global economy. While there is considerable economic pain for some – particularly small businesses and those in hospitality and travel – many enterprises are looking forward to getting back to normal.
We believe there is still considerable economic and market risk ahead, but it is simply too difficult to predict what markets will do next.
To date we hope you have taken confidence from our presence and our state of play updates and encouragement to remain calm. You can read more in our upcoming e-book, inspired by historical and recent events to help investors deal with scary markets. Because you have heard the Capital Partners story often, we hope this new publication gives you even more confidence that you’re on the right track. Keep an eye out for A Survival Guide for Scary Financial Markets – it’s on its way.
As the lockdown restrictions begin to ease, we have been working on a ‘return to the office’ plan but we’re in no hurry. We have been so fortunate to be able to work effectively from home and our whole team has been magnificent.
Speaking of being magnificent, our clients have been too! We have been blessed with your goodwill, patience and humour. Thank you for helping us serve you effectively during this time.
As we emerge from lockdown our focus remains on the health and wellbeing of our clients, our team and the community to limit the likelihood of an outbreak.
For the time being our state of play will mean our office will remain closed although team members will start returning on a rotational basis soon, with the remainder of the team working remotely.
We are encouraging all clients to continue using video conferencing for all regular progress meetings. It seems most people have this down to a fine art!
If you do come into the Delhi Street office for a face-to-face meeting, upon arrival you will be required to undergo a temperature check, practice personal hygiene measures (using hand sanitiser) and complete an attendance register. We ask you not to attend our office if you have any cold or flu-like symptoms, and we encourage those visiting our office to use the Covid-Safe App in line with the Chief Medical Officer’s advice. We hope that these measures will help keep everyone safe.