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.
The central bank response is one of the biggest stimulus packages we’ve ever seen and the right response in these trying times. Unfortunately, the response may have come about 2 weeks too late, with central bankers failing to heed warnings and learn from the mistakes made in the past in terms of acting too late. Potentially, a lot of the extreme market events we’ve seen in the last 2 weeks could’ve been lessened or softened if they had acted ahead of time.
The delayed response, whilst now showing signs of assisting markets in functioning more appropriately, will most probably mean they will need to provide even more stimulus at some stage over the next few weeks. The recent response, if levied 2 weeks ago, might have been sufficient.
In addition, governments may have been too slow to provide fiscal stimulus. Those that have provided stimulus, i.e. the Australian government, may have provided too little. Whilst the amount of stimulus required is largely guesswork from here, those more informed are landing at a required amount of approximately 20-30% of GDP (economic growth). To put that in perspective, for the Australian government, that would mean a package of $380 billion to $570 billion of fiscal stimulus, whilst for the US government, it would mean a package of more than US$4 trillion. That number is unlikely at this stage with the most recent reports indicating US$1-1.2 trillion which would involve US$500bn in direct payments to US citizens.
Coming back to the central bank response, a lot of it is quite technical, but the main point of it is to:
Below is slightly more detail, which we hope is a fairly easy to understand summation of the policy response we’ve seen to date:
Both central banks and governments now need to stand together and provide support – support to businesses, support to households, and support to investment markets. You can’t have “lock-down” with no support. We expect that support to be forthcoming.
As such, whilst we can’t yet say we’re through the worst of this from an investment market perspective, we do believe those support measures will mean we’re through the most of it.
As always, please contact us at any time to discuss your investment portfolio or financial strategy.
The Australian equity market (as measured by the S&P/ASX 200) started the year off much like the previous finished, although most of the steam had been taken out of the rally with January producing a solid +1.20% return. February was much more muted with the uncertainty of an imminent reporting season hanging over the market however with better-than-expected results, coupled with softer-than-expected domestic inflation data, March provided some highlights as Australian shares hit new record highs. The quarter ended on a high with March producing +3.27% closing the quarter off with an attractive +5.53%.
2023 made for another very interesting year in investment markets as macro / regime driven events resulted in extreme shifts in investor sentiment on an almost monthly basis. Investors chose to shoot first and ask questions later in what can best be described as a year of maximum noise.
The Australian equity market (as measured by the S&P/ASX 200) started the September quarter with a flurry but ended up in the red as the global “higher-for-longer” narrative (interest rates) coupled with the ever-increasing cost of living concerns caused consumer confidence to wane.