While we have seen a sharp selloff and expect another one today, this is not a ‘sell everything’’ moment…
The ASX 200 is looking at another big fall this morning which will undoubtedly prompt many investors to question whether it is wise to turn a blind eye. We discussed the potential fallout of a pandemic a few weeks ago, but it is never enjoyable watching one’s portfolio fall so it is worth re-examining our views to see if they still stack up.
The very brief summary of our views is that this is not some ‘sell everything’ moment. While Covid-19 is not identical to SARS, it is good to have a precedent to look for when trying to predict the future. This is perhaps more important when considering the real world impact the pandemic will have and a stock market response will follow that. Ultimately, fear is fear and I get no sense that people are more or less concerned than when SARS was daily headline news. Early reports suggest that while Covid-19 spreads more easily than SARS, the mortality rate is lower – extrapolate that however you want. Ultimately, I don’t think it matters – economic growth is going to be affected because people are staying home and not working/shopping and the differences between SARS and Covid-19 won’t change that. To some degree, I think the proliferation of e-commerce may actually soften the impact on economic growth as people shift their shopping habits online, so to some degree the comparison to SARS is a favourable one.
It should also be remembered that what is driving the current bull market is the current state of monetary policy. Central bankers globally will now be considering whether to drop interest rates and it is likely we also see big fiscal responses. This is the paradox of bad news in the stock market – sometimes bad news is good news because of the likely government response.
This is not a GFC, and by that, I mean that it will not lead to the long-term change in how economies operate. Once these fears subside, life will go back to normal and stock markets will go back to ignoring what has transpired. There will undoubtedly be companies that are impacted heavily, and it makes sense to look at one’s portfolio to ensure appropriate diversification, but we don’t see blanket selling as the wise course of action. Every market scare in history has ultimately been an excellent buying opportunity – we don’t think this will be any different.
It should be noted that Rivkin’s strategies offer a mix of negatively correlated investments so we will have an automatic response should the market continue to fall. Some strategies like Momentum will naturally go to cash, others like the Income and Event strategies really shouldn’t see any volatility whatsoever. So, in the context of a stock market that is within striking distance of all-time highs it’s important not to lose sight of the long-term game plan.
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