Markets were reliving the classic horror movie, ‘Friday the 13th’ earlier today. Last night was the biggest daily drop of U.S shares since 1987!
I had spoken to all of you last week and many of you this week as well. We had structured our portfolios towards more of a defensive tilt in the past 6 months as we were concerned about stretched valuations. The Covid-19 has been a catalyst to this correction in markets, further exacerbated by the oil pricing war, and driven to extremes by the fear that seems to now be engulfing the world!
Whilst there is likely to be more volatility in the coming days, buying opportunities will still exist in areas that have been less affected, are trading at below fair value and have a strong growth trajectory once the short-term noise of the virus has receded. There is now a strong probability of a global recession in the first half of this year. However, assuming the pandemic starts to decline within the next 2 to 3 months, the world economy should recover from the second half of this year. This, resoundingly, seems to be the key message from many of the thought leaders in Australia’s funds management industry as we close out one of the most dramatic weeks in markets in recent memory.
Although we believe there is likely to be further downside risk in equity markets, we also strongly believe that this presents opportunities for us to tilt the portfolios back towards the longer-term asset allocation and away from the defensive stance we took 6 or so months ago, so as to capture the opportunities the market is presenting currently. However, we will be cautious and tread slowly and carefully.
Thing to remember is that, if you have quality investments/shares, you actually do not lose ANYTHING when markets move down. You ONLY lose if you sell and crystallize the loss!
As I am about to send this write-up, the Australian market has reversed a -7.5% return to now positive by over 4%. Volatility is at its extreme!
Turn down the noise and talk to us if you have any concerns. Have a good weekend!