COVID-19 Striking Again: 5 Reasons Shares May Witness a Rise

Summary

• Australia and many nations globally are better placed to tackle the second wave of COVID-19 cases, demonstrating the possibility of a lesser impact on the share market.
• Extension of Government stimuli package and RBA’s move to keep cash rate and three-year yield target unchanged is expected to induce better business operating milieu and increased purchasing power among Australians
• Technology has enabled businesses to be better equipped to function amid the second wave of Coronavirus outbreak
• The world is currently more close towards availability of Vaccine which is considered crucial to combat SARS-COV-2, the leading causing agent of COVID-19

The resurgence of COVID-19 cases has put a dent to a recovering economy in Australia and globally. Renewed lockdowns and social distancing measure including state border closures are stalling the business activities once again, creating a fear of a second trough in the economy.

However, if an analytical reflection of the situation is done, Australia and many nations of the world is better placed to tackle the second wave of COVID-19 cases, and thus may affect the share markets minimally worldwide. Following are five reasons which may demonstrate why we need to be less fearful of the impact of second wave COVID-19 cases economically.

Extension of Government stimuli package to keep the purchasing power of people intact

Federal Government has extended its $70 billion programs to safeguard Australians faced with genuine liquidity crunch as the second wave of coronavirus rises crippling the economy further. JobKeeper wage subsidy and JobSeeker unemployment benefits are extended by the government till March 2021. However, generosity has been reduced.

JobKeeper wage subsidy and JobSeeker unemployment benefit

The government is going to cut the amount of both payments from October and will have a separate wage subsidy for the part-time workers. JobKeeper Payments will experience a cut with payment falling from $1500 to $1200 a fortnight after September. People who will work less than 20 hrs a week will receive a payment of $750 a fortnight from October. From 2021, the rates will be further reduced with full-time workers receiving $1100 a fortnight and people working less than 20hrs a week will receive $650 a fortnight.

The JobSeeker coronavirus supplement program will continue for an additional three months however, the amount will fall from $550 to $250 a fortnight, representing a payment of $815 a fortnight from the month of October for people on the program.

Business owner/sole trader benefit

If a business owner or a sole trader needs to continue to receive the JobKeeper benefit in the December quarter, they have to continue to show that the business has suffered a 30% or 50% turnover loss depending on business size for the quarter ending June and September. To be eligible to get 2021 extension of the benefit, business owners must show that their business continued to falter by 30% to 50% for the quarter ending 31 December.

Interesting Read: Will Australia experience a surge in Voluntary Administration once financial stimuli lapses?

Central Bank regulating the economy leading to better business operating milieu

The health of the Australian economy is still uncertain as new cases of coronavirus is rising to dent the economy recovering prospects. As a respond, Philip Lowe, governor of Reserve Bank of Australia (RBA) did not change the cash rate and three-year yield target, which remains at 0.25%.

The RBA is banking upon the federal government to keep augmenting the economy with stimulus programs that should propel business activities, retail spending and other consumption. The federal government is expected to announce a financial statement on 23 July 2020 covering the ongoing support programs.

The Australian economy has been experiencing a rebound with reopening of the economy and emergency measures induced by RBA in March. Share market and Australian dollar both showed recovery since the March bear market.

Businesses are better equipped to handle the second wave of Coronavirus outbreak

The world had been battling the disease since the first month of 2020 with nations globally imposing lockdown and social distancing constrictions. The measures to contain the virus have led to major economic disruptions with businesses around the world incurring huge losses. However, essential businesses must go on, and that has led to creation and incorporation of best practices which makes businesses operate by maintaining safety and social distancing. Technology has enabled remote working and contactless payments leading to a smoother functioning of businesses during the pandemic

As the second wave of outbreak gains prominence and government reinforcing lockdowns, businesses are better equipped to operate in the COVID-19 plagued economic environment.

Also Read: Wuhan- A Classic example for how economies can get back on track post-pandemic

Market confidence will be less sensitive

The emergency measures and government stimulus programs had boosted investor confidence considerably in the month of March, with share price growth trajectory taking an upwards turn and Australian currency appreciating.

Since the March low of 4,546.0 on 23 March 2020, S&P/ASX 200, the representing index of Australian Stock Market, has gained 35.4% to reach 6156.3 on 21 July 2020. The resurgence of cases started resurfacing since mid-June. However, the S&P ASX 200 index reflected very less sensitivity and remained between 5000 – 6000 marks. Instead, one month index movement reflected a 3.6% upsurge from 5,944.50 recorded on 22 June 2020.

Vaccine availability lot nearer as cases rise

The resurgence of cases has magnified the need for a vaccine as lockdown, and social distancing restrictions proved to deliver temporary relief to virus containment. However, the healthcare sector is currently at an advanced stage as compared to the initial months of 2020, when the COVID-19 had struck for the first time crippling humanity.

Countries around the world are facilitating vaccine development for COVID-19. As on 20 July 2020, World Health Organization has updated that 24 candidate vaccines are in clinical evaluation whereas 142 candidate vaccines are in preclinical evaluation. University of Queensland along with CSL and Seqirus are developing Protein Subunit ANZCTR which is currently at phase 1 trial period. The Protein Subunit is targeted against the SARS-CoV-2, the leading agent that causes COVID-19 disease.

Gavi, a Vaccine Alliance based on a public-private partnership, communicated that seventy-five countries are willing to protect their own populations and population of other 90 countries by joining the COVAX Facility, a mechanism co-led by Gavi that has been designed to ensure quick, fair and impartial access to COVID-19 vaccines worldwide. Gavi aims to deliver two billion doses of effective vaccines considered safe by the end of 2021. The vaccines have to go through regulatory approval and/or WHO prequalification to be marketed globally or specific region.

Also Read: Your Complete Guide: Companies Hitting the COVID-19 Vaccine Charter (Part 2)

To read our previous coverage for vaccine candidates under clinical evaluation, Read: Your Complete Guide: Companies Hitting the COVID-19 Vaccine Charter (Part 1)