The last week has felt like decades for people and countries most affected by the COVID-19 pandemic as they began adjusting to the disruptions to routines, family and professional lives. While some changes may be manageable, others are relatively difficult such as trying to run for a conference call while a toddler screams for attention. All this while, people are constantly looking for some indication that life will return to the way it was. The reality could be that we have actually entered a new normal that could last weeks, months or even years in terms of the impact being felt in some facets.
Relief packages are being enacted in different countries as unemployment has risen sharply, causing major disruptions in business operations. The policies being implemented right now to slow the spread of the coronavirus have severely curbed economic activity.
However, markets are looking forward, as governments around the world are willing to provide support to get their respective economies through the coronavirus pandemic. How the United States and Australia are sailing through unchartered waters is discussed below.
US Government at Economy’s Rescue
In the United States of America (the US), at the centre of the measures announced last week is the US$2 trillion stimulus package (a mixture of grants, deferments and loans) designed to keep people employed while supporting those who have lost their jobs. Over three million workers in the US filed new claims for unemployment benefits as businesses reduce salary costs which haveprompted the Congress and President Donald Trump to come at the rescue for supporting both companies and workers and position the economy for a quick rebound.
To this larger aid package with enough zeroes, the US equities responded well as S&P 500 rallied more than 10% last week demonstrating a positive sentiment amongst the investors towards the near-term outlook for recovery. Although, despite its rally, the S&P500 still remains almost 25% below its all-time high to date and concerns about market liquidity have also pushed bond prices lower.
The US support package includes over US$300 billion to be paid directly to households, an additional US$250 billion for unemployment and delays in tax payments. Businesses are being extended loans to keep the employees on payrolls. The US government has announced to be forgiving these loans if the companies retain the employees through the pandemic slowdown.
Australian Response to COVID-19 Disruption
Here in Australia, the government is also trying to act in the best interest of households, businesses and address the significant economic consequences of coronavirus, the size of which still remains uncertain in the foreseeable future. This is because the spread of the virus across the world has widened and the scenario is anticipated to be more prolonged.
Nevertheless, to cushion its economy, the Australian government is keeping up with the rest of the world with the announcement of the $130 billion JobKeeper Payment on 30 March 2020, a sort of a wage subsidy package, to support the Australian citizens working in those sectors primarily impacted by the COVID-19 outbreak. This follows the announcement of another $17.6 billion stimulus package to be pumped into the economy of Australia to prevent the country from going into what could be its first recession in the last 30 years. Totalling all the stimulus packages released so far in Australia, the Government’s support for the economy stands at $320 billion across the forward estimates, representing around 16.4% of annual GDP, as per the Treasury.
Following the information on the latest stimulus package, the S&P200 closed the day’s trade in green on 30 March 2020, demonstrating that equities are responding to any measures being taken to keep the economy buoyant.
While demand for services has dropped significantly in certain industries such as hospitality, travel and aviation, it has gone for others like telecommunication, technology, financial services, consumer discretionary and healthcare. Let’s look at the top three gainers on the S&P/ASX200 on 31 March 2020.
Credit Corp Group Limited (ASX:CCP)
A financial services sector Company, Credit Corp Group offers collection and credit management services in Australia. Although the Group withdrew its 2020 earnings and investment guidance on 20 March 2020 due to uncertainty arising from COVID-19 spread, the Company has a track record of strong performance over the past recent weeks and no material impact of the virus outbreak has so far been observed.
With a proven and industry-leading approach to customer hardship which delivers robust business results and sustainable consumer outcomes, Credit Corp is strongly positioned with a cash balance of $170 million undrawn credit lines maturing by 2022 and 2023.
On 01 April 2020 (at 02:39 PM AEDT), the CCP stock, with a market cap of ~ $751.83 million, was trading1.607% lower at $13.470 with ~1.29 million shares traded. Over the last five days, the stock has moved up 38.00%.
EML Payments Limited (ASX:EML)
Information Technology Company, EML Payments Limited provides payment card technology solutionsincludingprepaid disbursements and funding card programs for gaming payouts, government disbursements, healthcare reimbursements, and commission payouts globally.
Considering the potential impact of COVID-19 on future trading conditions, the Company also suspended its forward earnings guidance for the year ending 30 June 2020 as the current trading environment is unpredictable. Also, recent public announcements by several of its key customers, including shopping mall property owners and gaming customers, have been significantly negative with respect to future trading conditions as social distancing rules are implemented.
On 01 April 2020 (at 02:39 PM AEDT), the EML stock, with a market capitalisation of around $748.46 million, was trading0.87% lower with ~5.03 million shares traded. Over the past five days, EML has delivered a positive return of 59.17%.
G8 Education Limited (ASX:GEM)
ConsumerdiscretionaryCompanyG8 Educationoffers community-focused child-care for families to foster their child's development. The range of child-care services includes child-care centres acquisition, child-care centres management, and industry-related project management, services and consultancy.
The Company provided an update on 31 March 2020 concerning the Federal Government’s wage subsidy package and postponement of the Group’s second-half franked dividend until 30 October 2020. Also, in line with its cash management strategy, the Company’s Board believes the delayin dividend to be a prudent step in maintaining liquidity and protecting long?term shareholder value. The Group currently has $135million in cash and available facilities and maintains covenant headroom. The Group continues to have healthyand supportive relationships with its lenders.
With a market cap of $384.25 million, the GEM stock was trading0.599% higher at $0.840 on 01 April 2020 (at 02:39 PM AEDT), with ~3.96 million shares traded. Over the last five days, the stock has delivered a positive return of 41.53%.