In the last few weeks we have certainly seen more stability return to investment markets along with many countries, including Australia, talking about a return to work and some easing of restrictions which have plagued investment markets over the last three months.
However, in our view there is certainly still the need to remain cautious despite this recent optimism.
In Europe and in particular the UK we are still not seeing a significant drop in Coronavirus cases. In some cases we are also seeing a so called “second wave” of cases appear and therefore whilst everyone would like to see a return to normality as soon as possible, it could still be some time off.
Likelihood of a recession in Australia
Markets have almost certainly already priced in the expectation of a recession, in the USA, Australia and most other countries. Nevertheless, the question still remains as to how bad and how long a recession will last?
The answer will most likely depend on the availability of new antiviral drugs and ultimately a vaccine. In the mean time it is most likely we will continue to see small improvements on the path to recovery and likewise in some sectors of the market we will see V-shaped recovery whilst in others it will be a slower U-shaped recovery.
What investors need to focus on
Given these market conditions are so unusual, in that they are completely dependent on a health crisis, what can investors do?
During volatile periods like we are experiencing, investors can sometimes make sub-optimal decisions when emotions take over, tending to buy out of excitement when the market is going up and sell out of fear when the market is falling. Markets do ultimately normalise, and when they do, those who stay invested may benefit more than those who don’t.
Therefore for those already invested the message is to stay invested and try limit the draw-down of capital so that when market conditions improve you are best placed to participate in that growth.
For those looking to invest, the strategy of “dollar cost averaging” is worthwhile considering. This is where the amount you are looking to invest is divided into smaller parcels and invested over a period of time rather than all at once.
This article contains general information only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Before acting on any information in this report, you should seek financial advice taking into consideration your own personal objectives, financial situation and needs.