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Coronavirus update: A bounce in equity markets, but uncertainty remains

29 April 2020

Over the past several weeks, international equity markets have endured unprecedented levels of volatility as the COVID-19 (coronavirus) outbreak has weighed on the global economy.

While a lot of uncertainty remains – both on the economic and societal front – we have seen a number of developments on which we wanted to give you an update.

We have seen a bounce in equity prices

After a significant fall in the first quarter of 2020, global equity prices, while still remaining volatile, have rebounded sharply, with some indices are more than 20% up from the mid-March lows. The rebound has been attributed to a number of things, including:

  • Slowing number of cases: The number of new coronavirus cases has begun to plateau in some hotspots around the world, including Spain, Northern Italy and New York. In New Zealand, the Alert Level 4 lockdown has resulted in a significant decline in the number of new cases.
  • Fundamentals: While the outlook for the global economy is bleak, the fall in equity prices meant a number of companies became attractive investments at lower prices. And despite the uncertain outlook, there is still demand for quality well-run companies.
  • Medical advancements: Since the outbreak, we have seen medical professionals working around the clock to combat the virus and we are seeing advancements with Phase 3 trials for existing drugs and Phase 1 for vaccines.

The economy is set to face headwinds

Despite the rebound in equity prices, and what appears to be some positive news on the medical front, the outlook for the global economy remains downbeat. As countries shut their borders and ordered  ‘shelter in place’ to prevent the spread of the virus, global trade fell, weighing on economic activity.

On the heels of the economic slowdown, unemployment rates in a number of developed markets are expected to exceed 10%, some possibly 20%.

Additionally, there is strong evidence that the global economy is headed into a recession for the first time in more than a decade.

What is ANZ Investments doing?

ANZ Investments is an active manager, which means, during periods of volatility our investment specialists are able to use their expertise to navigate what can be a challenging environment. As the coronavirus outbreak began to unfold, the team increased its cash holdings. Cash acts as a defensive asset, providing diversification in periods of economic volatility and uncertainty.

However, in saying this, the decline in equity prices has enabled the team to invest in a number of quality companies with strong long-term outlooks at attractive prices.  

What can you do, and what can we do for you?

We understand this prolonged period of uncertainty and volatility can be unsettling. However, it’s important to remember that KiwiSaver and investment funds are long-term savings vehicles.

In saying this, it’s always a good to check our Risk Profile Tool to help you determine the right fund for your age, risk appetite and investment timeframe.

If you’re still unsure, we recommend you speak to a financial adviser and explore more resources available on our website.