Australia’s phase of interminable economic growth for about 28+ years is likely to end this year with the coronavirus pandemic has led the country into an economic turmoil. The viral disease has resulted in supply disruptions, trade halts, falls in the share market, hit to tourism and education, drop in the consumer and business confidence boding unrest for the economy already disturbed by drought and raging bushfires in 2019.
COVID-19, which originated in Wuhan district of China, has spread to about 176 countries affecting more than 225,000 people with over 9,200 fatalities and is on a persistent rise.
At a time when the stock market is on a roller-coaster every day, the Australian dollar is on a free fall, and the government bond yields are at historic lows, investing may not look like a good option. However, despite the adverse economic events hovering over the economy, an investor can tap individual opportunities and gain across specific asset classes.
Global Stock markets tumble
Markets are undergoing extreme instability making it hard for the buyers and sellers to price assets as consumers get nervous about their stock portfolios. Global stock markets are sinking even after the stimulus packages and interest rate cuts being announced by central banks.
The Asian stock ended deep in red on 19 March 2020 as investors and experts suspect the possibility of a virus-induced slowdown in the global economy.
The S&P 500/ASX 200 slid by 170 points to 4,782 on 19 March from 4,953 a day before, and a further fall is expected after another selloff on Wall Street. The consumer outlook was stifled with an increasing number of companies abandoning their earnings advice, flight cancellations by airlines and government imposing travel bans.
While the S&P 500 Index fell by 5.2% to a low of 2,398 on 18 March 2020, the Shanghai Composite Index for China fell to 2,702 on 19 March 2020. The rising number of coronavirus cases globally continue to tumble markets by ruining investor’s confidence. As per the market experts, shares are expected to show a further fall in the coming weeks.
Property Market looks good to invest, but uncertainty remains
While the property market has improved steadily and been robust so far in Australia, there are signs of buyers moving away from the market amid COVID-19 fears as per the property consultant, Core logic.
The housing market is anticipated to shrink amid rising uncertainty and tumbling confidence due to the virus fears. The present market seems to be the perfect opportunity for investors who want to buy a property or pick a real estate stock at discounted prices.
The capital city housing prices are expected to rise due to rate cuts and increased demand. However, poor affordability and weak economy amid coronavirus can result in a change in the buyer's attitudes putting their buying decisions on hold and hence, slowing the pace of the gain in property prices in coming future.
Some handy tips for Investors in this uncertain atmosphere
During this time of extreme uncertainty, nobody has a clue of what the future holds in the short term or long term. The mind is rattled when global stock markets are on record lows with negative sentiment prevailing all around.
This is a good time to build a handy portfolio from a long-term perspective. Portfolios must be built keeping in mind that markets are unpredictable, and market behaviours during such events in the past can be taken as a guide for assessing the market impact.
The Reserve Bank of Australia (RBA) had announced a cash rate cut of another 25-bps lowering it to 0.25% on 18 March 2020 to sustain jobs, incomes, businesses and prepare the economy well when the virus is contained. With RBA cutting the cash rate to 0.25%, cash and bank deposits are no longer attractive investment options as they are likely to provide poor returns.
It is suggested that one must look out for stable companies with a good dividend payment history. Dividends are paid out of the earnings of a company. One must look for the sustainability and stability of the dividends. If a company gives more in dividends than what it is earning, the dividends are not considered to be sustainable.
Another vital thing to look out for is the balance sheet of a company. If the earnings of the company do not well protect the dividend paid out, one must take note of the company’s balance sheet and see if there are any symptoms of financial hardships.
You could also diversify your portfolio with gold. Investors rush to invest in safe-haven commodities like gold at the time of uncertainty as it can partly shield them from the plunge in the equity market. Thus, investing in gold in the form of gold ETFs or gold sovereign bonds is a safe option. During a bearish stock market, gold has always proven to be a safe harbour.
Investors can also look to invest in short-term debt funds or funds with lower duration comparatively contingent on the investment perspective of the investor and inclination towards taking a risk. This is because the yields associated with short-term funds for up to three years are expected to be tied-up to the repo rate due to excess liquidity conditions and will not show a rapid spear from the present amounts.
You must seek value investing and pick out on sectors that are not affected directly by the crisis in the markets. A buy and hold strategy can be pursued in the current bearish market scenario where investors sentiment has taken a deep dive as the cases of coronavirus rise.
Amid the current volatility, the markets are going through due to the pandemic, diversification of portfolio across different asset classes like equity, debt and gold is the best bet. With a cloud of uncertainty around when the COVID-19 pandemic will subside and when the economies will recover, any anticipation of making a speedy return can prove to be risky.
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There is no investor left unperturbed with the ongoing trade conflicts between US-China and the devastating bushfire in Australia.
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