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Economics & Markets

What does the share market need to see now?

By Diana Mousina
Economist - Investment Strategy & Dynamic Markets Sydney, Australia

Share markets have rallied in the last month, but they’re well off their pre-coronavirus highs. Here, we look at what markets might need to see before strengthening again.

Lockdown restrictions are starting to ease now across Australia, albeit slowly. At the federal level, the government has always maintained that schools are a safe place for children, and is now urging parents to send their children back.

State leaders in NSW, Queensland, the Northern Territory and Western Australia have also kicked off plans to start slowly returning lifting social distancing restrictions, after about one month of lockdown. Western Australia was the first state to do this, after recording no new coronavirus cases for several days1.

It’s understandable to think that share markets might rally at these early signs that domestic activity in Australia might show signs of life soon. As we’ve discussed previously, local activity grinding to a halt is among the chief concerns for markets, more so than international travel being paused and borders being closed to non-citizens.

However, for several days and even weeks now, it’s been clear that Australia’s containment efforts are on track. Australia hasn’t had the experience of countries like the US, UK and Italy. The US, for example, has now exceeded a million cases, the most reported cases in the world, and its death toll has surpassed 57,0002. Australia has over 6,730 cases nationwide and the death toll is (currently) at 84, making it one of the more successful countries at this stage of achieving containment3.

Source: Worldometer, AMP Capital
Source: Worldometer, AMP Capital

It seems markets have already factored in Australia’s progress in containing the infection. At the moment, share markets in Australia have rallied about 17% since their lows during the coronavirus pandemic. Though they’re still down about 26% since their pre-coronavirus peak, that is a strong recovery over a relatively short time frame.

Right now, it’s difficult to see how markets could rally substantially more without significant new information at a time when the economic data is deteriorating significantly. Economic data for April should be the news of a vaccine, wider antibody testing or widespread use of antivirals all represent examples of moves that could be a game changer for the COVID-19 pandemic. These could ultimately assist in moving society back to a more regular or familiar way of functioning, and help markets find their feet.

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Diana Mousina, Senior Economist
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While every care has been taken in the preparation of this document, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) makes no representation or warranty as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This document has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. The information in this document contains statements that are the author’s beliefs and/or opinions. Any beliefs and/or opinions shared are as at the date shown and are subject to change without notice. This document is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.

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