What is going on? And what do we do?

13 Mar 2020
To put things bluntly, what has transpired in the last three weeks is unprecedented. Even during the GFC, market selloffs took far longer and ultimately markets feared what they couldn’t understand – why weren’t companies and lenders trusting each other? This time around, the fear is of something more tangible but the uncertain end to the outbreak, and what impact that will have on the global economy, is what is driving the market.

If the whole world was trending the same way South Korea or Singapore was trending, markets would be a whole lot higher. Italy has been a big wake up call, and hopefully the world recognises what the worst case can look like. Right now, the growing fear is that the next country to go the way of Italy is the United States and that is a big shock to markets. The U.S. government has been behind South Korea or Singapore every step of the way – from denial of the problem, to inadequate testing (still happening) to unhelpful stimulus measures. Right now, there is no point throwing financial stimulus at the economy when the market is simply looking for a medical solution. If hard decisions are made, the economy would endure a sharp downturn for a month or two and then life would resume as usual. Until these hard decisions are made however, markets will be devoid of logic.

The only silver lining in this is that right now markets have already, in only three weeks, factored in the worst-case or at least a strong likelihood of the worst case. Even if the U.S. turns into Italy, and businesses are forced to close which will mean many businesses don’t survive, the economy will still recover once the virus is contained. I am by no means suggesting that markets can’t continue to fall; I’m simply saying that the risk/reward of investing for the long-term right now is compelling. Even during the GFC, selling after the market had fallen this far would have been the wrong move because the market recovered so quickly from the bottom. The best gains are made after bear markets, and if the U.S. gets a handle on things then this may end up being the best buying opportunities we’ll ever see. If the U.S. gets worse, that is largely priced in already.

I know this is an incredibly stressful time, but we do know that the world will not end and even if the virus is not contained in the short-term, a vaccine is likely only one year away. If the world follows the example of South Korea and Singapore, this can and should be a blip on the radar. And we need to invest with these realities in mind.

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Julia K.

Hi there
i find it very difficult to buy in markets like this but after reading this if i bought some which industry would you suggest?

Shannon Rivkin

Hi Julia, This is an excellent question. The stocks I think that will truly look at this as ‘blip on the radar’ are names such as: 1) CSL – with a big influenza division, may actually benefit from the current turmoil 2) Domino’s – if this one falls enough, good buy as their major business is home delivery so they should fare relatively well 3) Netflix – gotta be good for business! 4) APA Group (APA) – gas transmission… can’t really see them seeing a big downturn yet they are starting to catch the falls 5) Transurban (TCL) – toll… Read more »

Julia K.


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