U.S. President Donald Trump’s national address from the Oval Office last night was intended to calm the public and investors. Regarding the latter, it appears to have fallen short of the mark.

Why? The announcement of new U.S. restrictions on travel to and from Europe for 30 days is likely to act as a further drag on the fundamentals for airlines and other related travel industries. In addition, the offsetting stimulus measures that were announced such as loans to small businesses either lacked the specificity or size to satisfy the market, and the reaction was swift.

What happened overnight?

  • Equity markets sold off, with the biggest daily drop of U.S. stocks since 1987.
  • Investor sentiment soured during the day as the World Health Organization (WHO) declared the coronavirus situation a global pandemic and markets digested the potential repercussions to growth of a more prolonged disruption in economic activity.
  • Equity and credit markets declined as the S&P 500 was down more than 9% on the day and remains over 23% lower since the end of December.
  • The AUD dropped sharply. The AUD/USD exchange rate is now at 0.625.

What does this mean for Australian investors?

  • There is a distinct possibility of a recession in Australia, the US and the euro area during H1 followed by a recovery in H2 as output and demand normalize.
  • Japan is very likely already in recession.
  • In the absence of major domestic economic imbalances, the downturn in the advanced economies should be relatively mild (still assuming the outbreak peaks in the next two months).
  • We expect further rate cuts from the Fed, with a distinct possibility of a return to zero and a resumption of asset purchases.

**** Please note: As we write this the Australian market has staged an extraordinary comeback. We hope this can be sustained into next week.


We do not claim to have any unique insight on the future contours of this virus. That is, in part, informed by a humble recognition that much of our expertise lies in the fields of economics and finance.

At times such as these it can be useful to take a step back and think about what has happened and how that might inform our preferred positioning going forward.

According to Paul Eitelman of Russell Investments there are three important questions to ask:

  1. Valuations: Has the selloff improved the skew of potential returns on risky assets?
  2. Sentiment: Is there evidence of a capitulation or panic that suggest risk premia are more attractive?
  3. Cycle: Can we formulate a differentiated view on the economic and earnings damage from COVID-19?

Please click here to read Paul’s full assessment of the framework.


We recognise that we are in the midst of a humanitarian crisis that is of deep concern to all of us both professionally and personally. We also realise that during this time of severe market volatility, you may have questions about your investments and what actions to take given the extreme uncertainty ahead.

Please know that right now, we are focused first and foremost on communicating with fund managers who are actively managing the assets you have entrusted to us. Our portfolio managers and analysts are working relentlessly to assess the evolving market climate and ensure portfolios are positioned to navigate the crisis and continue to seek to deliver on their long term objectives. Also, our business has robust continuity plans in place to help ensure the safety of our employees and avoid any disruption to our operations as the impact of COVID-19 continues to unfold.

A further analysis of the COVID – 19 situation will be distributed early next week via our ‘Weekly Market Update’. If you have not already please opt-in to receive this publication by clicking here.


Should you have questions now or at any time, please don’t hesitate to reach out to your FinSec adviser.