Three important things for investment markets in the COVID-19 crisis

It’s important to realise there is a great deal of controlled action coming from governments and central banks at the moment, though markets and sentiment feels distinctly out of control. This goes a long way in reminding investors and markets that the COVID-19 financial crisis is an event which we have the capacity to manage our way out of.

Panic and investor pessimism is just about at fever pitch, at or above GFC levels. Bad news about the COVID-19 escalation is in abundance, and this human health crisis has fast evolved in a crisis for financial markets. Of course, this has also been aided by an oil price war, which has reverberated through the credit market.

This crisis is, undoubtedly, significant and severe. However, it will end, and it’s vitally important for investors to brace for recovery, remembering that panicking and heading for the exit will likely lock in a loss while markets are racing to the bottom.

Many investors hurt their long-term prospect during the GFC. They panicked and moved a chunk of their money into cash, meaning they were invested during the downside, and not the upside and rebound¹.

To that end, below is a list of important events and happenings for investment markets, to remind you that there is a way out of this – and authorities are actioning the most substantial plans of our time to make it so.

1. The news has been incredibly bad, but the policy offset has also been monumental.

Daunting as restrictions and huge government debts are, it was more worrying when markets were in panic, and policy makers were not panicking.

The policy support now is by far more than what we saw during the GFC. During the GFC central banks were trialling various tools, but this time they know exactly what they have in their tool box, and are using it effectively.

2. For the first time since February, markets have been able to put on back-to-back gains.

That’s a change in market character and it means something. As market rally, the virus backdrop is also changing – for example, testing is becoming more available, daily rates of new infections are decreasing in places like Australia and Italy. This is a reminder to everyone that markets adapt, and they don’t stay in either a bear or bull run forever.

3. Productivity will be essential in the rebound, and the potential could be massive.

Governments are the iron lung of the economy at the moment. To facilitate that important role, they’ve gone into massive amounts of debt. It follows that productivity will be essential in the recovery, to force economic growth and repay what we owe.

I am hopeful about the potential in the recovery period. For a long time, we’ve been talking about a low-growth environment, and central banks have been calling for productivity gains and investment. Now, growth will need to happen, and it will need to happen quickly. The scope for innovation, for a radically evolved jobs market, for new ways of working, is an exciting prospect.

Words to remember

These are the times when our patience, resilience and confidence as investors is truly challenged. In the words of Syrus “Anyone can hold the helm with the sea is calm.” Now, the seas are not calm, but that doesn’t mean that long-term strategies adhered to in peacetime don’t apply. In fact, this is precisely when long-term thinking is imperative. This is a temporary situation, and we believe that investors with a robust strategy should be considering whether their decisions are based on a situation that will end, or the recovery they want to position themselves for.

¹ https://www.bdo.com.au/en-au/insights/superannuation/articles/super-and-why-you-need-to-take-a-long-term-view