Australian equities were caught in the sharp weakness in global investor sentiment as the world grappled with COVID-19. This black swan event caught everyone unawares and the ensuing global contagion prompted a significant bout of volatility. Financial markets were enveloped by substantial uncertainty and stock markets worldwide experienced an indiscriminate sell-off as the COVID-19 contagion unfolded. March 2020 was an exceptionally dismal month as global economies simply shutdown to contain the pandemic. It is important to mention that up until then, Australian equities had been quite resilient against the backdrop of severe drought and large-scale bushfires in Australia and concerns about waning global growth as well as the ongoing and prolonged US-China trade dispute.
I’ve often commented that equity markets do not follow the economy in a linear manner and tend to look much further ahead. This is true of the current crisis and we saw the Australian equity market begin to factor in positive sentiment from early April onwards, once the pace of the contagion tapered off in Australia. As the curve began to flatten out, domestic equities rebounded and regained some lost ground. Overall, Australia has demonstrated its relative resilience in the face of the pandemic. The Government was proactive in issuing significant stimulus measures aimed at providing employment and financial support to labour force, low-income households and small to medium enterprises as economic activity came to a near halt. These measures have provided some support, as evidenced by the Reserve Bank of Australia’s recent remarks that the economic downturn will be less severe than previously expected given progress in curbing the spread of COVID-19, the easing of restrictions on businesses and households, and the scale of monetary and fiscal policy measures put in place to support the economy.
Looking ahead, COVID-19 contagion has impacted economies, markets and people’s lives significantly. However, it is important to note that it is effectively one-off in nature and its impact on corporate earnings and economic growth should not be factored into perpetuity. Having said this, I am also mindful of some future market volatility as we assess the pace of economic activity, coupled with earnings downgrades. Simultaneously, we are also witnessing a notable acceleration in existing trends such as e-commerce, digital delivery of food and beverages, cashless transactions and work from home which will only expand the universe of investment opportunities as more innovation and business models come to the market.
Fidelity’s strong suite continues to be its enviable team of equity and fixed income analysts on the ground, around the world, and I rely on this support as I search for the best investment ideas. The pandemic clearly demonstrated the scale of our investment research is unparalleled, and we are supported by well-developed technology systems that facilitate a seamless exchange of information and analysis. This has meant that we’ve been able to take advantage of recent volatility and upgrade the portfolio with stocks at attractive valuations which bodes well for the longer-term.