InvestNow News – 13th Mar 20 – AMP Capital – Corona crisis intensifies, but corrections ultimately provide opportunity and reward quality
10 Mar 20 – Greg Fleming – Head of Investment Strategy New Zealand
Global markets are currently in a state of turmoil as the COVID-19 virus crisis continues to run amok and government action is perceived as inadequate. While commentators are raising the probability of a recession to a near-inevitability, it should be remembered that interest rates are at historical lows and moving lower, extra fiscal spending is in the pipeline, and there are currently-sound employment and consumer balance sheet levels in key economies, including in New Zealand. This means that there is a fair likelihood that once medical and better quarantine solutions to the virus emerge and panic subsides, the typical consumer will not be as severely impacted as was the case in the Global Financial Crisis or during previous economic and market downturns.
This is not to minimise the current risks, which are clearly elevated. However, recent years have seen pricing distortions in financial assets as the result of an unusual lack of focus on risk. We believe this period of artificial over-confidence is in the process of being resolved, and that much better valuations (and the restoration of a range of risk premiums) will be the ultimate outcome. The timing of any sentiment improvement is not yet in the realm of investment strategy, as so much still depends on the medical and fiscal response being escalated by global authorities. However, we feel it is valuable to re-state our investment rationale and positioning as it applies to current and expected market conditions.