Before we begin, some housekeeping.. • This webinar will begin shortly to allow attendees to arrive and connect to the audio • If you’re experiencing audio difficulties, try dialling in using your phone • Please enter your questions into the Chat box • A recording of the webinar will be emailed to you after the webinar • For further tools and resources, please visit our COVID 19 webpage on Navwealth website COVID 19 Market Update and Strategies
Transcript
Before we begin, some housekeeping..• This webinar will begin shortly to allow attendees to arrive and connect to the audio• If you’re experiencing audio difficulties, try dialling in using your phone• Please enter your questions into the Chat box
• A recording of the webinar will be emailed to you after the webinar
• For further tools and resources, please visit our COVID 19 webpage on Navwealth website
COVID 19 Market Update and Strategies
General Advice Disclaimer
This webinar has been prepared by Navwealth Financial Group Pty Ltd.
Navwealth Financial Group Pty Limited ABN 71 064 594 350, trading as Navwealth is an Authorised Representative and Credit Representative of AMP Financial Planning Pty Limited ABN 89 051 208 327 (AMPFP) Australian Financial Services Licence 232706 and
Australian Credit Licence 232706.
Any general advice in this webinar does not take account of your personal objectives, financial situation and needs. You shouldconsider whether the information is appropriate to your needs, and where appropriate, seek further professional advice. Taxation, legal and other matters referred to in this webinar are of a general nature only and are based on Navwealth’s interpretation of laws existing at the time and should not be relied upon in place of appropriate professional advice. Those laws may change from time to
time.
Presenters
Craig BanningCEO
Wealth Adviser
Mitch HanniganAMP Capital
Portfolio Specialist
Andrew WemDirector
Wealth Adviser
Stuart HollmanWealth Adviser
Alistair MettamWealth Adviser
0
50
100
150
200
250
00 02 04 06 08 10 12 14 16 18 20
Australia - ASX 200
US - S&P 500
Index
US - S&P 500
Source: Bloomberg, AMP Capital
SHARES HARD HIT BY CORONAVIRUS UNCERTAINTY
ECONOMIC AND INVESTMENT OUTLOOK
Expect a very large hit to global GDP in the June quarter from coronavirus driven shutdowns & uncertainty, followed by some recovery by year end as shutdowns easeInflation to remain low Global monetary and fiscal stimulus is far larger than seen in the GFCAustralian fiscal stimulus is around 11% of GDP, RBA is undertaking quantitative easing (printing money). Cash rate to be around 0.25% for at least three yearsShares at risk of a pull back in the short term – as we are likely to see bad data and profits - but should provide good returns on a 12-24 month viewWhat to watch: risk of a “second wave”, timely economic indicators, unemployment, indicators of stress, policy stimulus, US/China tensionsKey is that collateral damage from the coronavirus economic “disruption” is kept to a minimum in terms of business failures and incomes
Source: AMP Capital
FORTUNATELY AUSTRALIA WAS WELL PREPARED FOR A PANDEMIC
Source: Goldman Sachs, AMP Capital
HMMM
CORONAVIRUS CURVE FLATTENING
-
1,000
2,000
3,000
4,000
5,000
6,000
1 11 21 31 41 51 61 71 81 91 101 111 121 131
Case
s/Po
pula
tion (
mil.)
Days since first reported case
Coronavirus cases per million people
Italy
China
Korea
Spain
Iran
Switzerland
Netherlands
Germany
France
Japan
Singapore US
UK
Norway
Australia
Austria
Sweden
Belgium
Canada
Brazil
-
20,000
40,000
60,000
80,000
100,000
120,000
140,000
-
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
4,000,000
4,500,000
16-J
an19
-Jan
22-J
an25
-Jan
28-J
an31
-Jan
03-F
eb06
-Feb
09-F
eb12
-Feb
15-F
eb18
-Feb
21-F
eb24
-Feb
27-F
eb01
-Mar
04-M
ar07
-Mar
10-M
ar13
-Mar
16-M
ar19
-Mar
22-M
ar25
-Mar
28-M
ar31
-Mar
03-A
pr06
-Apr
09-A
pr12
-Apr
15-A
pr18
-Apr
21-A
pr24
-Apr
27-A
pr30
-Apr
03-M
ay06
-May
09-M
ay
Coronavirus confirmed cases worldwide
Total cases worldwide(LHS)
Daily Change (new cases)(RHS)
Source: Worldometer, Bloomberg, AMP Capital
CORONAVIRUS CURVE FLATTENING – SAME PATTERN AS CHINA
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
0
1000
2000
3000
4000
5000
6000
Mainland China: Coronavirus daily change (new cases)
Daily Change:Mainland China
Easing lockdownmeasures
Tightening lockdown measures
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
0
100
200
300
400
500
600
Australia: Coronavirus daily change (new cases)
Daily Change:Australia
Tightening lockdown measures
Easing lockdownmeasures
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
0
1000
2000
3000
4000
5000
6000
7000
Italy: Coronavirus daily change (new cases)
Daily Change:Italy
Easing lockdownmeasures
Tightening lockdown measures
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
United States: Coronavirus daily change (new cases)
Daily Change:United States
Easing lockdownmeasures
Tightening lockdown measures
Source: Worldometer, Bloomberg, AMP Capital
AUSTRALIA HAS BEEN DOING VERY WELL IN GETTING CORONAVIRUS UNDER CONTROL
Source: Worldometer, Bloomberg, AMP Capital
GLOBAL BUSINESS CONDITIONS HAVE BEEN HARD HIT BY CORONAVIRUS, WORST GDP SLUMP SINCE 1930’S
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
30
35
40
45
50
55
60
05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Global Composite PMI (LHS)
World GDP growth, annual % change (RHS)
Global Composite PMI vs World GDP
30
40
50
60
05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Services
Manufacturing
Global Manufacturing & Services PMIsStronger conditions
Weaker conditions
Source: Bloomberg, AMP Capital
CHINESE ECONOMY SLOWLY COMING BACK TOWARDS NORMAL
Source: Bloomberg, AMP Capital
US initial jobless claims surging and pointing to a huge spike in the unemployment rate (20% to 30%)
Consumer and business confidence has weakened… and could fall further
25
35
45
55
65
20
55
90
125
160
00 02 04 06 08 10 12 14 16 18 20
US Confidence Indicators
Index IndexBusiness Conditions (Manufacturing/Services, RHS)
CORONAVIRUS AND THE GLOBAL ECONOMY – MORE LIKE A “U” RECOVERY THAN A “V” IN THE LEVEL OF ACTIVITY
-14
-12
-10
-8
-6
-4
-2
0
2
4World (G4) GDP growth scenarios
Base case
Worse case
Pre-virus%QOQ rate
* GDP (PPP) weighted average of US, EU, China & Japan
-12
-10
-8
-6
-4
-2
0
2
4
6
China GDP growth scenarios
Base case
Worse case
Pre-virus
%QOQ rate
25
30
35World GDP level scenarios
Base case
Worse case
Pre-virusReal PPP $ trillions
-14
-12
-10
-8
-6
-4
-2
0
2
4
6
US GDP growth scenarios
Base case
Worse case
Pre-virus
%QOQ rate
Source: AMP Capital
0
20
40
60
80
100
120
0
20
40
60
80
100
120
99 01 03 05 07 09 11 13 15 17 19 21
QE will boost central bank balance sheets
% of GDP
Bank of Japan
Federal Reserve
European Central Bank
Australia
Source: AMP Capital
CORONAVIRUS AND THE GLOBAL ECONOMY – SIGNPOSTS ARE BECOMING MORE POSITIVE
THIS LOOKS TO HAVE HELPED THE AUSTRALIAN ECONOMY IN THE MARCH QUARTER…A BIT
AUST ECONOMY LIKELY TO CONTRACT SHARPLY THIS QUARTER… APRIL/MAY LIKELY TO BE THE LOW POINT
Base case Worse case
Unemployment, high 10% 15% plus
Wages growth -1% -4%
Underlying inflation 1% 0%
House prices -5 to -10% -10% to -20%
$A (low) ~$US0.55 ~$US0.50
-60
-50
-40
-30
-20
-10
0
10
20Australia Economic Activity Tracker*
Annual % change
* Components of the tracker include; Credit card data, Energy usage, SEEK job ads, Traffic index, Retail foot traffic, Restaurantperformance, Consumer confidence, Home prices, Apple mobility index & Google Mobility Index.
-14
-12
-10
-8
-6
-4
-2
0
2
4
6
Australia GDP growth scenarios
Base case
Worse case
Pre-virus
%QOQ rate
400
420
440
460
480
500
520
Australia level scenarios
Base case
Worse case
Pre-virus
Real $A billions
Source: ABS, AMP Capital
A PHASED REOPENING FROM MAY
Three steps
Each step conditional on medical criteria
Phased opening of shops, cafes etc
Gradual return to work
Gradual return to domestic travel
Distancing & hygiene maintained
international travel last to return – except NZ, students?, First Mover countries?
Note that the bulk of the hit to economic activity (-10 to -15% of GDP) has come from the shutdown impacting domestic activity, global travel/immigration is just cream on the top
Source: Australian Government, AMP Capital
AUSTRALIA MAY COME THROUGH THIS PERIOD BETTER THAN MOST COUNTRIES = BENEFIT TO AUSTRALIAN ASSETS & $A
Better virus control
Better stimulus
Exposure to China
0
5
10
15
20
25
30
35
40Australia has seen the strongest fiscal response in the G20
Education and tourism trade balances in Australia(Exports - Imports, % of GDP)
% GDP
Education
Tourism
Source: AMP Capital
SHARE MARKET VALUATION INDICATORS SHARES CHEAP AS SHARE PRICES & BOND YIELDS HAVE FALLEN
-2
-1
0
1
2
305 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Australia
Expensive
Cheap
-2
-1
0
1
2
305 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Europe
Expensive
Cheap
-2
-1
0
1
2
305 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
USA
Expensive
Cheap
-2
-1
0
1
2
305 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Japan
Expensive
Cheap
Source: Bloomberg, AMP Capital
UNCERTAINTY IS HIGH BUT LOW INTEREST RATES PROVIDE SUPPORT FOR SHARES EVEN WITH A SHARP FALL IN DIVIDENDS
Source: Bloomberg. RBA, AMP Capital
RECESSIONS TYPICALLY ASSOCIATED WITH DEEP & LONG BEAR MARKETS BUT THIS IS A DIFFERENT ECONOMIC HIT
Based on All Ords. A bear mkt is defined as a 20% or greater fall not fully reversed within 20 months. Source: Bloomberg, AMP Capital
A HISTORY OF BEAR MARKETS IN AUSTRALIA
THE LATEST DECLINE IN BOND YIELDS IS POSITIVE FOR UNLISTED ASSETS, BUT RETURNS ARE LIKELY TO GO NEGATIVE AS RENTS ARE HIT AND FORCED SELLING IMPACTS
Source: Bloomberg, AMP Capital
THE AUSTRALIAN PROPERTY MARKET HAS SLOWED –EXPECT PRICES TO FALL AROUND 10%
Source: Core Logic, Domain, AMP Capital
THE $A MAY HAVE ALREADY SEEN ITS LOW – THE MAIN RISK WOULD COME FROM A “SECOND WAVE” OF COVID19 CASES
Source: RBA, ABS, Bloomberg, AMP Capital
HOPEFULLY THIS WON’T BECOME PERMANENT…(AMERICANS SHOPPING AT WALMART)
…BUT THE CRISIS WILL HAVE SOME LASTING IMPLICATIONS
Lower for even longer interest ratesInvestor caution reinforced again/consumers to remain focussed on paying down debtFurther boost to on-line retail and working from homeFurther blow to globalisation/boost in support for populism/boost to US-China cold warFurther boost to big government/bigger public debtBad for airlines (but then so was terrorism)Higher inequality
Some risks
Key stress points are US corporate debt, Eurozone integrity, Australian household debtSocial dislocation/tensionsBig risk for President Trump (as presidents aren’t re-elected when there’s a recession), risk of “wag the dog” (conflict with Iran, China, Venezuela to distract voters)Money printing + bigger gov/debt + protectionism drive much higher inflation longer term
Source: AMP Capital
NINE RULES FOR INVESTORS TO KEEP IN MIND IN TIMES LIKE THE PRESENT
Make the most the power of compound interestDon’t get thrown off by the cycleInvest for the long term DiversifyTurn down the noiseBuy low and sell high – selling after a big fall just locks in a lossBeware the crowd at extremes – shares bottom at the point of maximum bearishnessFocus on investments you understand and that provide decent, sustainable cash flowsSeek advice
Source: AMP Capital
MAKE THE MOST OF THE POWER OF COMPOUND INTEREST
Source: Bloomberg, AMP Capital
DON’T GET BLOWN OFF BY THE CYCLE & SHARE MARKET SWINGS
Source: AMP Capital
Source: AMP Capital
INVEST FOR THE LONG TERMSHARES HAVE ALWAYS CLIMBED A WALL OF WORRY
BEWARE THE ROLLER COASTER OF INVESTOR EMOTION –SHARES BOTTOM AT THE POINT OF MAXIMUM BEARISHNESS
Source: Bloomberg, AMP Capital
TIMING IS HARD
ECONOMIC AND INVESTMENT OUTLOOK
Expect a very large hit to global GDP in the June quarter from coronavirus driven shutdowns & uncertainty, followed by some recovery by year end as shutdowns easeInflation to remain low Global monetary and fiscal stimulus is far larger than seen in the GFCAustralian fiscal stimulus is around 11% of GDP, RBA is undertaking quantitative easing (printing money). Cash rate to be around 0.25% for at least three yearsShares at risk of a pull back in the short term – as we are likely to see bad data and profits -but should provide good returns on a 12-24 month viewWhat to watch: risk of a “second wave”, timely economic indicators, unemployment, indicators of stress, policy stimulus, US/China tensionsKey is that collateral damage from the coronavirus economic “disruption” is kept to a minimum in terms of business failures and incomes
Source: AMP Capital
AMP Capital Disclaimer
While every care has been taken in the preparation of this document, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited
(ABN 15 159 557 721, AFSL 426455) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts.
Past performance is not a reliable indicator of future performance. This document has been prepared for the purpose of providing general information, without taking account of any
particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to
