FREE EDUCATION

Coronavirus stimulus and affect on investments

Coronavirus cases continue to grow around the world. Italy (69,176 cases) and New York City (over 15,800 cases) are amongst the worst-affected areas.

Coronavirus cases continue to grow around the world. Italy (69,176 cases) and New York City (over 15,800 cases) are amongst the worst-affected areas. Australian cases have also risen to 2,044 driven by Australians returning from overseas travel. This has seen governments react with major lockdowns on state borders and the inevitable shutdown of many businesses. Governments and central banks, such as the Reserve Bank, are acting to stimulate the economy and help people who have lost their jobs.

These moves have negative implications for the economy and mixed ones for your investments.

Australia

Government efforts to reduce virus cases include:

States closing their borders to non-essential travel.
Limiting large gatherings both inside and outside
State governments in NSW and Victoria are also imposing a shutdown of non-essential businesses such as restaurants and gyms.
Starting school holidays early in Victoria.

Our health response appears to be doing reasonably well with 8 reported deaths in Australia. For context other countries with similar numbers of infected cases had substantially more deaths and intensive care cases.

Economic Impact

Some of these measures cause substantial economic damage with people in the hospitality sector amongst the hardest hit. Given pubs and restaurants for example have been forced to close for the foreseeable future, these employers have had little choice but to let staff go. This has seen a surge in Centrelink applications this week as reported in the media.

The government has been trying to help by announcing:

One-off payments to pensioners and other welfare recipients at the end of March and during July.
Cheaper business lending via the Reserve Bank, and
Increased fortnightly payments to the unemployed including those most recently affected.
Returning tax payments to businesses.
Letting people impacted by job changes access their super early

Will the stimulus work?

The government measures will help support people that lost their jobs because of the impact of this outbreak.However, there is also a higher chance of an Australian recession for the first time since the early 1990s because of the job losses and business shutdowns that are happening.In addition, there are flaws in the current stimulus that means recovering could take longer for our economy. We may see higher unemployment rates and increased Centrelink reliance for some time.

What is being done elsewhere?

In the US, over $1 trillion in stimulus is being negotiated to support bailouts and increased unemployment benefits.
In the UK a £60bn stimulus plan is also underway.

This will help the global economy eventually recover from the actions taken to stop the spread of the virus.

What does this mean for your investments?

The Government stimulus and RBA policies will help stabilise the economy in the medium term.

Be prepared for:

Low returns on cash term deposits and bonds for the next three years at least (RBA is targeting lower yields in Australia).
Potential weakness in property markets from rising unemployment (people defaulting on loans). Rents to come under pressure potentially from rising unemployment rates reducing the income of any direct property you hold in the short-term.
Dividends will come under pressure in the short term. Many listed companies will struggle to keep their performance going. Be prepared for cuts to dividend income and/or franking.

Good news stories:

Your investments won’t just include shares. You may have exposure to alternatives or government bonds that have helped protect your assets during this time with some of these experiencing positive performance during this period.
Equities and listed property to experience some share price weakness over the next 12 months but stronger long-term.
Age Pension to be more accessible through lower deeming rates legislated by government. This will help offset weaker income from cash and term deposits.

One of the best times to stay invested was at the end of the GFC in February 2009. Equity markets had fallen a lot and investors gained from holding and reinvesting those dividends back into their portfolios (to buy more shares).

If you invested $1 in May 1992, that has grown to $8.42 as of 24 March this year with 68% of this coming from holding and reinvesting your dividends.

This is an example of how staying invested for the longer-term makes a difference and the gains that you can make by holding the course.

Important Information | Prepared by – Cameron Curko | Approved By – Matt OlsenThis report is prepared by the IOOF Research team for:
Bridges Financial Services Pty Limited ABN 60 003 474 977 AFSL 240837, Consultum Financial Advisers Pty Ltd ABN 65 006 373 995 AFSL 230323, Elders Financial Planning ABN 48 007 997 186 AFSL 224645, Financial Services Partners ABN 15 089 512 587 AFSL 237 590, Millennium3 Financial Services Pty Ltd ABN 61 094 529 987 AFSL 244252, RI Advice Group Pty Ltd ABN 23 001 774 125 AFSL 238429, Shadforth Financial Group Ltd ABN 27 127 508 472 AFSL 318613 (‘Advice Licensees’).

This report is not available for distribution outside Australia and may not be passed on to any third person without the prior written consent of the Advice Licensees.

Declaration of interests: The Advice Licensees and/or its associated entities, directors and/or its employees may have a material interest in, and may earn brokerage or other fees from, any securities or other financial products referred to in this report, or may provide services to, do business with or seek to do business with the company referred to in this report. The Advice Licensees and associated persons (including persons from whom information in this report is sourced) may do business or seek to do business with companies covered in its research reports. As a result, investors should be aware that The Advice Licensees or its associates may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as a single factor in making an investment decision. A list of material interests of The Advice Licensees and its associates, and product issuers referred to in our research reports, can be found on the following IOOF website link www.ioof.com.au

The information contained in this report is for the use of advisers of AFSL entities authorised by The Advice Licensees in writing.

General Advice Disclaimer:The information in this report is general advice only and does not take into account the financial circumstances, needs and objectives of any particular investor. Before acting on the general advice contained in this report, an investor should assess their own circumstances or seek advice from a financial adviser. Where applicable, the investor should obtain and consider a copy of the prospectus or other disclosure material relevant to the financial product before making any investment decision to acquire a financial product. It is important to note that the price or value of financial products go up and down and past performance is not an indicator of future performance.

Analyst Certification: This report has been prepared and issued by the IOOF Managed Funds Research team members, who certifies that: (1) all of the views expressed in this report accurately reflect his or her personal and professional views about any and all of the subject securities or issuers; and (2) no part of his or her compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed herein.

The writers, and/or entities in which I have a pecuniary interest, None.

The Advice Licensees believe that the information contained in this report has been obtained from sources that are accurate but has not checked or verified this information. To the extent permitted by the law, The Advice Licensees, its related bodies corporate, its directors, officers, employees, authorized representatives and agents accept no liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of the information contained in this report, or in relation to, the contents of or omissions in this report.This report is current as at the time of publication but may be superseded by future publications. You should confirm the currency of this report and obtain summary information about: material interests and Research analysts’ holdings; the qualifications and experience of the IOOF research team; and the coverage, criteria, methodology and spread of ratings from www.ioof.com.au