Coronavirus & its impact on the share market.

“Coronavirus – in your opinion what’s the impact on the share market? Like many others we’ve seen a significant down turn… is it hold tight… or panic!?”

Our Financial Planner Bruce Chisholm has been inundated with this question since the Coronavirus outbreak. See his most recent response below, as at 23 March 2020. 

The Australian share market (ASX200) is down 33% from the peak in February 2020, similar to the US share market (S&P500) which is down 32%.  This is more than prior disease outbreaks such as the Zika virus episode in 2016 when the US market fell 13% and in the SARS outbreak (2003) when it also fell about 13%. 

The market has been very volatile with big downs and big ups – the worst days recently for the ASX200 were 16 March (↓9.70%), 12 March (↓7.36%),and 9 March (↓7.33%), with the best days 17 March (↑5.83%), 13 March (↑4.42%), and 10 March (↑3.11%).

There could be further market drops before a sustained recovery, and volatility is likely to remain high for some time.

The market can recover quickly after such events – in the 6 months after the SARS outbreak, the US share market was up 21.5%.

So, what should you do?  
Some may be tempted to sell and go to cash to avoid further losses, aiming to get back in when things are looking better – you may feel relief if markets fall further, but you are turning a paper loss into a real loss.  Often markets bounce back very quickly in anticipation of a better outlook, and this may be before you are comfortable.  The English theologian and historian, Thomas Fuller, is credited with the saying that “the darkest hour is just before the dawn”. No one rings a bell at the top of the market or the bottom of the market.  Likely you won’t buy back in at the right time and likely you will have made your situation worse.  Sitting it out and doing nothing, whilst this may feel uncomfortable, typically gives the best result.  Maybe stop watching the economic update on tv or checking the market and instead tune in to a trashy reality tv show! 

For those that are adding to their super and investments regularly, they will benefit from the current market situation, as effectively they are buying investments whilst they are “on sale” and will benefit more when markets do recover.  Just remember, whilst shares are “on sale” at the moment, there could be an even ‘better’ sale yet to come, but regularly buying/investing helps manage this risk. 

For those who are drawing down on investments via a pension or who live off investment income, their investments will be still generating income, albeit potentially reduced given the economic environment, and so ideally they aren’t eating into their capital too much and they should benefit from the recovery when it comes. The government has just announced a 50% reduction in pension minimums for 2019/2020 and 2020/2021 that will help those who don’t need their full pension payments. 

Bruce’s summary
Share markets will recover and go on to grow, and with time, we will look back at the coronavirus impact as being just another one of many other market disruptions. 

Article written by Bruce Chisholm, Financial Planner, Highview Accounting & Financial.