Bad news sells!

When you read the news, sometimes it can feel like the only things reported are terrible, depressing events. Why do the media concentrate on the bad things in life, rather than the good?

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We have seen a roller coaster ride in investment markets over the last couple of months with a recent rebound.

The US equity market fell more than 34% from peak to trough this year, before rebounding more than 27%. In Australian dollar terms, the fall was only 25%, given movements in the Australian dollar. Therefore, being unhedged on currency for US equity investments, as Financial Keys clients predominantly are, assisted materially. The Australian equity market fell more than 36% before rebounding more than 20% more recently.

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With all the changes we are witnessing to our own working and living arrangements, as well as those of our family and friends, we wanted to take this opportunity to provide an update. The Financial Keys team are currently working from home to do our part in reducing the amount of people travelling to and from the city. It is, however, business as usual, and we maintain the same capabilities as we have in the office.

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We have all been inundated with negative news flow over the last few weeks. We have been looking for some positives to write about of late, to help everyone’s psyche at present. We have come across some interesting information pieces over the last couple of days and elaborate below.

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Some of you may have seen or heard of the recent policy action from central banks around the world in response to the significant economic and market impact caused by the response to control the spread of the virus.

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We understand many of you would have seen the incredible share market volatility during the last few weeks, which has seen trading days of up or down 10%. Overall share markets have experienced falls which appear to be a function of panic regarding the inability to model the impacts of Coronavirus containment on the economy and asset prices. Once panic sets in, rationality is hard to come by. 

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In relation to the outbreak of the Coronavirus, we have introduced an infection control measure with the aim of keeping staff and clients safe.

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During this period of market volatility, we remain available to discuss your portfolio and investment strategy. We will continue to provide regular communication and keep you up to date with investment markets and the global economic environment.

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As many of you would have been following, investment markets locally and globally have fallen sharply this week on renewed concerns regarding the Coronavirus, or Covid-19, as it’s known.

At the time of writing, both the Australian and US equity markets are down more than 8% for the week, with Europe down more than 6%, and Japan down more than 5%. US technology stocks are down almost 8%.

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………and like that, the decade came to an end.

Bushfires, a Royal Commission, Brexit, Trump v China and the Hong Kong turmoil - the year that was 2019. The global economy was rife with market changing events not limited to those mentioned.

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This commonly used idiom or cliché describes the feeling of time passing by very quickly. Most scientific research was able to explain away this perception of phenomenon as simply the desire to do, see, hear, read and observe more and not enough time in which to do it all. In scientific circles, it was also referred to as Time Pressure.

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One of the topics asset allocators are grappling with at the moment is whether asset class valuations are expensive or not. Whether you’re an active asset allocator or an active bottom-up stock picker, valuation will most likely form the core or at least a significant part of your analysis when making a decision to enter or exit an investment. 

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When building investment portfolios for clients many aspects are considered.

For example we consider the different asset classes - Australian Equities, International Equities, Australian Fixed Interest, International Fixed Interest, Property to name a few.

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With an increasing focus in the market on how we are all building our client portfolios, it is incredibly important to have a strong and defendable investment framework in place. This investment framework consists of, but is not limited to, how we structure our investment committee, what our APL looks like, and where we get our research from. 

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It’s a challenging time for asset allocators in the current environment, which has seen asset prices and market sentiment shift quickly on the back of a single tweet. Markets in July were generally strong across most assets, but August has seen a re-emergence of trade tensions between the US and China. More importantly we have seen the yield curve invert with the 10-year US treasury falling below the 2-year treasury for the first time since 2007, which, as you may recall from the text books, has historically been an indicator of economic weakness.

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