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An update on the coronavirus and why the price of oil is falling

11 March 2020

As you may have seen or read recently, there has been a pickup in market volatility due to the ongoing concerns around the coronavirus, and more recently, the sharp decline in oil prices.  

This may have resulted in a decline in your KiwiSaver or investments account balance, and given this, we wanted to give you an update on the coronavirus situation and some information around the fall in oil prices as well as some information on how we can assist you.

Information on the coronavirus

The coronavirus was first reported in the city of Wuhan, China in late-December, 2019 and as of 10 March 2020, it has resulted in nearly 4,000 deaths with more than 100,000 cases reported. Initially, the virus was contained in mainland China, but now cases have been reported in at least 100 other countries.

In response, a number of countries, including New Zealand, imposed travel restrictions for people coming in and out of China and other countries that have exhibited significant increases in the virus.  

 

Why did the price of oil drop?

As the coronavirus outbreak began to weigh on the global economic outlook, the price of oil began to fall as international trade slowed down.

In a bid to stabilize oil prices, the Organization of the Petroleum Exporting Countries (OPEC) met on 6 March 2020, to agree on a production cut, which would reduce supply and steady prices.

However, talks fell through after Russia – the third-largest oil producer – rejected the plans. Then on 8 March, Saudi Arabia – the second-largest oil producer – in response to Russia, said it would increase production, starting what appears to be a price war.

 

Financial reactions

There have been sharp declines in global equity markets as the coronavirus has limited the movement of goods and people. Meanwhile, the oil price decline has hurt the energy sector.

In the US, the S&P 500 fell more than 7% on 9 March and is down around 15% year to date. Meanwhile, the price of oil fell more than 25% on 9 March 2020, its biggest one-day fall since the Gulf War. However, both the S&P 500 and oil prices regained some of their losses on Tuesday.

In New Zealand, the NZX 50 has fallen more than 10% from its recent record high; however it is still up around 10% year-to-date. The concerns in New Zealand come from the slowdown in trade with China – a significant trading partner of New Zealand. Furthermore, the travel restrictions to and from China are likely to lower tourism numbers.

 

What does it mean for your investments?

It is important to remember that KiwiSaver and investment funds are long-term savings vehicles. Volatility is all part of investing and can often serve as good buying opportunities, for active investment managers, such as the team at ANZ Investments.

To put the recent declines into perspective, over a one year period to 10 March 2020, our five ANZ KiwiSaver Schemes diversified funds (Growth through Conservative) have after fees and pre-tax returns of between 3.74% and 6.77%.

In saying this, now might be a good time to check our Risk Profile Tool, which will help you determine the risk profile that best fits your situation.

If you’re still unsure and would like some help, we recommend you speak to a financial adviser. If you don’t have one, you can give our team a call on 0800 269 238 – they can give you advice tailored to your personal situation.

This article has been prepared by ANZ New Zealand Investments Limited for information purposes only and it should not be treated as financial advice. It is recommended that you seek advice from an authorised financial adviser which takes into account your individual circumstances before you acquire a financial product. Past performance does not indicate future performance. Performance is not guaranteed and may be negative as well as positive.