COVID-19 & Its Ongoing Implications

General

As COVID-19 continues to impact on many aspects of life across the globe, we at My Wealth Solutions are dedicated to providing you with the information and insight you need to continue making smart financial decisions.

That’s why we have created this live blog, which we will continue to keep up to date with all communications we have sent out the My Wealth Solutions community regarding COVID-19’s impacts on your financial world.

The communications we have sent so far include, from newest to oldest:

  1. Ground Control #6: The Rollercoaster Is Over
  2. Ground Control #4: The Road Out
  3. COVID-19 Information Update: New Tax Rules | Scams To Be Aware Of
  4. Ground Control #3: The Next 3 Months and Beyond
  5. A New Market Update From Your CARE Committee
  6. Ground Control #2: Defensive Assets in a Volatile Market
  7. The Economic Response to COVID-19
  8. Ground Control #1: Making Sense of the Nonsensical
  9. Market Update Regarding Coronavirus
  10. COVID-19’s Impact On The Financial Markets
  11. Our Thoughts On The Recent Stock Market Volatility
  12. Your CARE Committee On The Financial Markets

Ground Control #6

This communication was originally sent on the 25th of May 2020.

In this update Grahame Evans, a member of your CARE Investment Committee, sits down once more with Emmanuel Calligeris, who some of you may recognise as the Chair of the CARE Investment Committee, to give their insight into how companies will report in a COVID-19 environment and the need to look for total return, not dividends.

Watch it here:

Episode #6 – The Rollercoaster Is Over


 

Ground Control #4

This communication was originally sent on the 28th of April 2020.

In this update Grahame Evans, a member of your CARE Investment Committee, sat down again with Emmanuel Calligeris, who some of you may recognise as the Chair of the CARE Investment Committee, to discuss the RBA forecasts, ‘negative’ oil prices and what he sees as the way out – but with warning signs we need to be aware of.

Watch it here:

Episode #4 – The Road Out: Tread Carefully


 

COVID-19 Information Update

This communication was originally sent on the 15th of April 2020.

It’s been a number of weeks now since the effects of COVID-19 ramped up in Australia and the federal government implemented stricter measures to combat its effects.

Since that time we, as your dedicated team of financial experts, have been working to ensure that you’re kept up-to-date with any changes to your financial world that may occur as a result of COVID-19.

To that end, we’re writing to you today with another round-up of information we believe you should know so you can keep making smart financial decisions.

The topics covered in this email include:

  • The Potential Tax Benefits of Working From Home
  • The Scams Currently Circulating Regarding Government Payments

The Potential Tax Benefits of Working From Home

If you’ve been working from home as a way to protect yourself and the larger community from the effects of COVID-19 you may have noticed that some of your expenses have increased.

Luckily, when it comes to work-from-home related expenses, a new temporary short-cut implemented by the Australia Taxation Office (ATO) will allow individual taxpayers to claim a deduction rate of 80 cents per hour for all work-from-home running expenses.

This new temporary method will allow individuals to claim these deductions for all running expenses incurred during the period from the 1st of March 2020 to the 30th of June 2020. The expenses that this 80 cents per hour method covers will include:

  • Electricity expenses associated with heating, cooling and lighting the area at home which is being used for work
  • Cleaning costs associated with your dedicated work area
  • Phone and internet expenses
  • Computer consumables, such as printer paper and ink, and stationery
  • Depreciation of home office furniture and furnishings, e.g. an office desk and chair
  • Depreciation of home office equipment, such as your computer or printer

If you’re unsure about whether you can claim something as part of these new deductions, we’d recommend keeping your receipts which you can then use to discuss with your accountant when tax time arrives.

This new method will also allow multiple people within the same household to claim their expenses using the new rate, which means that if you are a couple living together or you live in a sharehouse, you’ll still all be able to claim the 80 cents per hour deduction rate as individuals. You also don’t need to have a dedicated office area within your home to be able to make a claim, which was previously an obstacle to claiming working-from-home related expenses.

If you’re unsure about your eligibility for these new tax deductions, your accountant will be able to work with you to assess whether you could benefit from this new method and, if so, how you can go about maximising your benefits.


Financial Scams You Should Know About

Unfortunately, as the impacts of COVID-19 have left many financially uncertain and worried about their futures, there has recently been an increase in the number of scammers trying to exploit these vulnerable members of our community.

Accessing Superannuation Early Scam

According to Scamwatch, one of the most serious of these new scams is one targeting those who may be able to access a portion of their superannuation early as a final measure to prevent financial hardship. For those eligible to receive this early release, the ATO has organised this process so it is done entirely through myGov, with no need to involve a third party.

In this scam, scammers are cold-calling those who are eligible for early release and claiming to be from organisations that can help them gain earlier access to their super. Their goal is ultimately to obtain enough personal information so that the scammers will be able to access the victim’s superannuation funds for themselves.

Since you won’t need to enlist the help of any third parties if you are planning on accessing your superannuation early, it’s important that you ignore and report to Scamwatch anyone who may have contacted you claiming to be able to help you access your super early.

Once-Off Stimulus Payment Scam

In this scam, those who are eligible to receive the once-off $750 payments from the government’s stimulus package have been contacted and asked to provide details of where they would like their payment to be deposited. The scammers have been requesting this information through phone calls, text messages and emails.

Again, this payment will be made automatically to those already receiving the eligible government payments through MyGov and so there is no need for anyone to contact you regarding your personal details. Government agencies will also never request personal or financial information from you in this manner.

Fraudulent Transaction Scam

This scam involves scammers posing as employees from a bank advising you of fraudulent transactions on your credit card or account. They will then ask for your personal information in order to verify that these transactions are false, but in reality the scammers will likely use your personal information to access your accounts themselves.

As is the case for all of the scams mentioned above, the best way to combat them is to never divulge personal information or passwords until you have triple-checked the source of the person asking for it. And if even after doing so you’re still unsure, take your time to think about it and never give in to pressure to divulge your personal information.


 

Ground Control #3

This communication was originally sent on the 14th of April 2020.

In this update Grahame Evans, a member of your CARE Investment Committee, discusses with Emmanuel Calligeris, who some of you may recognise as the Chair of the CARE Investment Committee, what may happen in the next three months in regards to the spread of COVID-19 in Australia and its financial implications.

Watch it here:


Episode #3 – The Next 3 Months and Beyond


 

Market Update From Your CARE Committee

This communication was originally sent on the 2nd of April 2020.

We understand this is an extremely tough time for many as the world faces uncertainty both health-wise and financially. Unfortunately, COVID-19 continues to be the dominant theme of the financial markets, resulting in continued market fluctuations.

With this in mind, we have another update for you from Emmanuel Calligeris – the Chairman of the CARE Investment Committee – who shares his thoughts on the current state of the market.

Watch it here:

CARE Market Update #2

Keep reading for a more detailed explanation of Emmanuel’s take on the current state of the market:

Events surrounding the COVID-19 pandemic continue to evolve quickly and furiously. As has been well broadcast, borders have closed around the world, public events cancelled and millions of people forced to isolate at home.

The COVID-19 panic is causing a level of market volatility rarely seen before. The financial markets have had a tough time understanding the magnitude of depth of the problem and are now analysing the adequacy of the compensation by central banks and governments. As we have seen many industries are being affected with tourism particularly hard hit, so too education, hospitality, retail and the entertainment sectors.

Central banks around the world, including the Reserve Bank of Australia, have reacted rapidly and decisively to the crisis. They have unleashed massive stimulus programmes effectively doing “whatever it takes” to bridge the gap for companies whose revenue and profits have essentially evaporated.

Economic activity is collapsing because of the contraction that government-ordered lockdowns and restrictions on public activity aimed at controlling the spread of the virus is having. The nosedive in activity has been accelerated by warnings from health officials along with fear and anxiety fostered by the daily reporting on the spread of the virus and by announcements of the shutdowns themselves.

The severity and speed of the demand shock is large, and the policy reaction has been the right one. There is no doubt that recession will be recorded around the world by the second quarter of 2020 however we are now faced with the question of whether this is going to be a V-Shaped recovery or a U-Shaped recovery? Unemployment rates around the world are likely to record very large increases.

In Australia, some estimates of the unemployment rate see it recording over 10% from the current 5.1% level. Although the rise is likely to be temporary, it will be interesting to see whether the rate falls just as fast as it rises. The Covid-19 induced recession could last longer than financial markets currently expect. It is too early to tell.

The latest data (as at 29 March 2020) from the World Health Organisation (WHO) showed the number of confirmed cases was 638,146 across 202 countries, with the US now surpassing China and Italy as the most cases worldwide. In the U.S., the number of confirmed cases rose to 137,294 and total deaths increased to 2,414, with at least 20 states with more than 1,000 known cases within their borders.

New York remains the hardest hit, with 59,513 total cases, an increase of over 7,000 yesterday and recorded the largest number of deaths in a day with 237, taking the total to 965. President Trump considered a mandatory quarantine for the New York City area over the weekend, however, decided against such measures.

In Australia, the total number of cases rose to 3,980, an increase of 9.5%, with the daily rate of transmission halving in recent days, however there are still concerns on the number of community transmission, particularly in NSW. As at 29th March 2020, NSW reported 127 new cases, a much lower number than the 174 on the 28th.

Prime Minister Morrison announced stricter rules on outside gatherings limiting them to two people, urged people over 70 or with a chronic illness over 60 to stay home and a moratorium on evictions from rental properties for six months on the basis of ‘financial stress’.

Financial markets are extremely complex at the best of times. This is one of the most complex times to navigate markets ever. If the tentative signs of the “flattening of the curve” in Australia is indeed occurring coupled with the very large policy response, markets may begin to settle.

As we have mentioned in our updates, the Investment Committee warned that markets were becoming expensive when it broke the record high just over a month ago and it was a good time for clients in CARE or using a bucket strategy to top up their cash reserves. We have not shifted from our view on recommending our clients remain calm and invested.

Considering the substantial corrections, we have already seen in the market, it seems appropriate that cash be deployed as some value has been restored.  We maintain our Investment Philosophy consistent with our process and look to rebalance the growth assets within the portfolios back to benchmark being wary that volatility will remain high in the near term.

 

Emmanuel Calligeris

Chairman, Investment Committee


 

Ground Control #2

This communication was originally sent on the 30th of March 2020.

We’re writing to you today with another Ground Control video concerning the continuing impacts of COVID-19 on your financial world.

In this video Grahame Evans, a member of your CARE Investment Committee, sits down with Andrew Papageorgiou, Joint Managing Partner of Realm, to discuss how the current environment initially played out, its impacts on the defensive assets markets and how Realm is managing this.

Watch it here:

Episode #2 – Defensive Assets: True to Label in Volatile Times


 

The Economic Response to COVID-19

This communication was originally sent on the 26th of March 2020.

You may have seen over the weekend that the Australian Federal Government announced the implementation of a $189 billion economic stimulus package designed to offset the continued impacts of COVID-19 on the national economy.

The package, which was created to aid the recovery of the Australian economy after the COVID-19 threat has passed, includes a number of benefits available to everyday Australians like you and your family.

These benefits include:

For Casuals & Sole Traders

For those workers affected by the economic downturn and closure of many businesses and services across Australia, the government has expanded the eligibility for income support payments as well as introduced a new, time-limited coronavirus supplement.

This supplement will be paid at a rate of $550 per fortnight for the next 6 months and is available in addition to the other government payments currently available, such as JobSeeker Payment, Youth Allowance and Farm Household Allowance amongst others. For example, anyone eligible for the maximum JobSeeker payment will now receive more than $1,100 a fortnight which effectively doubles the amount of income earned. Interestingly, asset tests and waiting periods that may have previously been in place will not apply to this supplement, making it accessible to some who may have been previously excluded.

Sole traders or casual workers who have had their income or hours reduced by 20 per cent or more as a result of the effects of COVID-19 will also be able to access up to $10,000 of their superannuation tax-free. However, it is important to keep in mind that accessing your superannuation early should only be undertaken as an emergency measure and after consulting with your dedicated financial advisor on whether it is the right option for you.

For Households

Even if you are not eligible to receive the limited-time coronavirus financial supplement, the government has also made available two $750 stimulus payments. These once-off payments will be available to existing social security, veteran and other income support recipients and eligible concession card holders.

Aimed at particular in helping pensioners and other financially vulnerable Australians to weather the impacts of COVID-19, to be eligible for these payments you must be receiving an approved payment or hold an eligible concession card before or on the 12th of March 2020.

The first payment will be made automatically to those who are eligible from the 31st of March 2020, with the second payment following from the 13th of July 2020.

For Pensioners

Deeming rates – which determine the pension income assessment, in turn affecting how much income you may receive through the pension – will be reduced to put them in line with the latest reductions by the Reserve Bank of Australia..

From the 1st of May 2020, the lower deeming rate will be 0.25% with the upper deeming rate becoming 2.25%.

While this may not seem like much at first glance, it was estimated that when deeming rates were reduced by half a percentage point in the first stimulus package, age pensioners would receive, on average, an additional $219 per year. In this stimulus package, deeming rates will be reduced by 0.25 percentage points.

There will also be a temporary 50% reduction in the minimum pension drawdown rates for the 2019/20 and 2020/21.

For Employers & Small Business Owners

The Federal Government has announced a number of support options for small businesses and not-for-profits to help with managing cash flow challenges and ensure as many employees are maintained as possible.

These measures include, but are not limited too:

  • Funding support for small businesses and not-for-profits with an aggregate annual turnover of under $50 million which will take the form of a payment of up to $100,00 with a minimum payment of $20,000. Like many of the payments announced in this stimulus package, these payments will be tax-free.
  • In a similar vein, if an employer employs apprentices or trainees, they may be able to apply for a wage subsidy of 50 percent of the apprentice or trainee’s wage for 9 months from the 1st of January 2020 to the 30th of September 2020. Employers will be reimbursed up to a maximum of $21,000 – or $7000 per quarter – per eligible apprentice or trainee.
  • The establishment of a scheme to guarantee 50% of new loans to SMEs up to a maximum of $40 billion of new lending. This scheme is in addition to the $90 billion of funding made available by the Reserve Bank to Australian Banks.
  • Temporary relief for distressed businesses, which includes increasing the threshold for creditor action and a delay in the time frame to respond.

As always if you had any questions or concerns about anything above or would like to know how you may personally benefit from the government’s stimulus package, please don’t hesitate to contact us and a member of our team will be happy to assist you.

As your dedicated financial partners for life, we will also continue to update you as developments surrounding COVID-19’s potential impacts on your financial world continue to develop.


 

Ground Control #1

This communication was originally sent on the 24th of March 2020.

Due to the continued impact of COVID-19 on many aspects of daily life across the globe, you may be starting to feel as if the world has turned upside down.

That’s why we, as your dedicated team of financial experts, wanted to take the time to share with you this video of Joseph Palmer – a share analyst and stockbroker with over 10 years of experience in fund management institutions – in conversation with Grahame Evans, a member of your CARE Investment Committee.

Together, Joseph and Grahame discuss the current financial landscape and aim to provide clarification on the future of the global economy in the first of their brand new series, Ground Control.

Watch it here:

Episode #1 – Making Sense of The Nonsensical!


 

Market Update Regarding Coronavirus

This communication was originally sent on the 20th of March 2020.

As we continue to live through these unprecedented times we feel it is important to keep you updated with timely thoughts.

Recently Emmanuel Calligeris, the Chairman of the Investment Committee recorded a market update for advisors and clients alike. We thoroughly encourage all of you to watch the video as it covers how both the international and domestic markets have been impacted by the corona virus along with the responses and plan moving forward.

Watch it here:

Seminar – Market Update


 

COVID-19's Impact On The Markets

This communication was originally sent on the 16th of March 2020.

As your team of investment experts, we’re dedicated to ensuring you’re up-to-date with all changes in the market in the wake of the recent volatility caused by the continuing impact of the coronavirus on the global economy.

As such, we’re writing to you today with another market update from Emmanuel Calligeris, the Chairman of the CARE Investment Committee:

Investment Market Update

Keep reading for a more detailed explanation of Emmanuel’s take on the current state of the market:

Financial markets have been sold off heavily since the end of February firstly in response to the Coronavirus (COVID-19) and then in response to an unexpected breakdown in the relationship between Saudi Arabia and Russia which caused oil prices to fall substantially. In the last week markets began to focus on COVID-19 again as the incidence and rate of spread was higher than previously anticipated. The current news cycle is overwhelming. Taking the time to remain calm and rational, whilst extremely difficult, is vital.

The disruption is likely to last for a few months yet as markets remain nervous in such uncertain times. The scale of financial market moves in response to the COVID-19 outbreak has been reminiscent of the global financial crisis, however the economic data whilst likely to slow for the remainder of 2020, suggests that the global economy is on more solid footing and very importantly, the financial system is much more robust than it was going into the crisis of 2008.

We don’t believe that the COVID-19 spread needs to be an expansion-ending event. Australia has enjoyed 28 years of uninterrupted annual economic growth which, whilst tested with drought and fires recently could continue despite the increasing incidence of the virus. To avert a sharp slowdown, we need to see a concerted, coordinated and pre-emptive response on both fiscal and monetary policy. Monetary policy should be focused on supporting the functioning of financial markets while fiscal policy should be concentrating on supporting households and companies. A level of co-ordination between both is required for optimal outcomes.

To this end it is timely that the government’s $11 billion stimulus package in the next three months, reaching $18 billion by the middle of next year was announced yesterday and the Reserve Bank of Australia decreased the official cash rate last week. The speed of the fiscal stimulus is welcome but only time will tell if the amount is sufficient because the threat from the virus has been rising rapidly and we don’t know how much damage it is set to wreak. The good news is that the government has left the door open to an even bigger stimulus package if needed.

Other countries are also stimulating their economies. The UK announced a $58.4 billion infrastructure package and the Bank of England lowered the cash rate by 0.50%. The US, whilst a laggard, is deferring taxes and considering other measures to combat the potential slowdown. China is starting to get back to work as Coronavirus rates are slowing.

Australian and international shares have been sold indiscriminately in the past week as the panic over the virus, which may lead to recession, has spread. The current situation is extremely fluid, and we are monitoring the virus containment activities globally as well as corporate profits and credit markets. Notwithstanding our vigilance, we acknowledge we are not virus experts or epidemiologists.

The selloff in share markets seems overdone and whilst valuations were stretched in February, they now seem cheap. Another positive outcome will come from the fall in the oil price. Interestingly, it has resulted in cheaper petrol prices and will ultimately lead to greater consumption potential as we save money at the bowsers.

The strong run in markets in the last year means the current pullback is exceptionally uncomfortable. A lot of investors have been squeezed into equities by low interest rates. Some of this money is coming out of markets and it is always difficult to predict the bottom while fear has taken hold.

We do not know if markets will turn around in the short term. However, our investment philosophy remains focused on the long term and on achieving investor outcomes through a broad asset classes and well diversified portfolios. We focus on maintaining a good cash reserve particularly for retirees so that they do not have to sell down shares and property in adverse times such as these.

 

Emmanuel Calligeris

Chairman, Investment Committee


 

Our Thoughts On The Stock Market

This communication was originally sent on the 10th of March 2020.

As a valued member of the My Wealth Solutions community, we wanted to share with you our thoughts on the recent stock market fluctuations in the wake of the continued spread of coronavirus and its impact on the global economy:

As the media continues to point to the recent volatility as a sign of troubling times to come, we just wanted to take the time to remind you how important it is not to panic in times like these.

As a member of the My Wealth Solutions community, your investment portfolio has been constructed according to the CARE Investment Philosophy and is designed with a long-term investment focus in mind. This focus means that, when correctly diversified, your portfolio is designed to weather any fluctuation that occurs in the market with confidence.

There are 3 main ways that investors lose money during times of uncertainty in the market. These include:

  1. Panicking and selling: this happens when uneducated investors don’t understand how markets react or how they recover in the long term.
  2. Being forced to sell investments: this may happen when you don’t have, or have not planned to have enough, reserves or liquidity to ride out the storms of down markets.
  3. Not having a diverse portfolio: diversification ensures you are invested across multiple companies, reducing your exposure to individual company risk. CARE Investment Portfolios are structured to provide you with massive diversification as they are designed to prevent investors from putting all their eggs in one basket and hoping for the best.

The CARE Investment Philosophy, combined with your expert team of investment advisors, was designed to combat all of these ways that investors may potentially lose money.

In an environment like the current market, we believe that there are 8 ways investors can MESS IT UP and endanger the success of their investment portfolios:

  • Media: don’t let the media become your financial advisor. The media understands you are four times more likely to act out of fear to protect yourself than because of greed. The next time you hear a negative media story about the share market think to yourself ‘how often do you hear a good story about the share market where everyone made money and the market went up?’. The reality is that positive stories and up markets don’t sell newspapers, and this is why they are rarely told. So it is important that you are consciously aware to not get caught up in the hype of the bad news story of the day when it happens.
  • Emotions: good investment choices must be made with a clear mind. The best advice we can give you when it comes to investing is this: always make logical, calm, calculated investment decisions with both a long term and short term perspective and never make an investment decision solely based on your emotions or a reaction to a market drop or market increase.
  • Short-term focus: a focus that is short-term can be extremely expensive in the long-term. We don’t focus on what’s hot in the stock market right now or the short term; instead, we focus on where your investments are going to end up in the future.
  • Single-issue obsessions: losing sight of the bigger picture can be your biggest enemy. Many investors get caught up on one issue and how this will affect the whole world. It’s always important to have perspective and to assess each individual issue and consider whether it may or may not have relevance in the grand scheme of things.
  • Illiquidity: not having enough cash reserves makes you vulnerable. Suddenly selling down shares to obtain cash creates what is called a sequencing risk. Sequencing risk is also known as the reverse effect of dollar cost averaging. That’s why the CARE Investment Philosophy advocates having at least four years of cash reserves in retirement for when the markets drop. This will eliminate the need to sell shares in down markets and reduce the impacts of sequencing risk to your portfolio.
  • Timing and Selection: investors may think they can but NOBODY can successfully time the market. Our view is that anytime is a good time, as we use a strategy called dollar cost averaging where you invest into the market little by little. If the market is going down you are buying shares at a cheaper price and if the market is going up, you are not paying as much on the way up.
  • Under-diversification: a successful investment portfolio is a diversified investment portfolio. Having a diversified portfolio across many different companies simultaneously is a good strategy. If, for example, one company fails and 299 do well then the investor has gained overall and is in a less vulnerable position than if they invested only in the one company that failed.
  • Performance: a focus on market performance is massively misguided. The old school market proposition of picking stocks or investment managers who consistently out-perform the market is not a real or sustainable value proposition. Consistent market out-performance is largely non-existent and can lead to Dalbar-type behaviour when the markets drop and investors panic and sell.

In fact, making a rash decision based on fear may be one of the worst things you can do to the success of your investment portfolio.

Consider this table, sourced from Tony Robbins’ book Unshakeable, which shows the worst share market corrections in recent history and how much they recovered over the following 12 months:

If you had decided to pull out of the market and sit on the sidelines in any of those periods it may have had a significant impact on the success of your portfolio if you had missed the trading days that saw the most growth.

As Rob McGregor, the founder of the CARE Investment Philosophy, puts it: market volatility isn’t something to fear. Instead, it provides a golden opportunity to grow your portfolio even further as you continue on your journey to financial freedom.

This idea is explained further in what is known as the Dalbar Study, a study that is fundamental to the CARE Investment Philosophy. Originally conducted between 1980 and 2000 in the USA on the top 500 US listed companies, the original Dalbar Study found that the average return over a 20 year period for those same companies was 12%, which is a very good average return.

Do you know what the return was for investors in the US market over the same period? It was around 4%.

And the number one reason for the 8% difference was bad investor behaviour.

The chart below details the emotional rollercoaster that investors experience when the market fluctuates:

So what happens when markets are down?

When investments markets are down, we often have the media striking fear into the investment world, prompting bad investor behaviour where uneducated investors sell out of the market by turning their shares into cash at the lowest point. When the market starts to look good again and is going up, these same investors buy back into the market when share prices are high, missing the opportunity to purchase shares while prices are low.

Due to this bad investor behaviour, shares are sold when they should not have been sold and bought when they should not have been bought. This is exactly how investors sacrifice 5-8% of their investment portfolios every year and shows how the Dalbar cycle of bad behaviour can impact on the success of your investment portfolio.

And that’s why panicking during a period of market volatility is one of the worst things you can do.

As always, if you had any questions or concerns how the recent volatility may affect you personally, please don’t hesitate to get in touch.

As your team of dedicated financial experts, we’re here to help.


 

Your CARE Committee On The Markets

This communication was originally sent on the 2nd of March 2020.

Emmanuel Calligeris – who some of you may recognise as the Chairman of the CARE Investment Committee – has an update for you on the state of the market:

Financial markets have fallen abruptly as investors try to assess the impact of the COVID-19 virus on corporate profits. Supply chains have certainly been disrupted as highlighted by companies such as Apple Inc., Alcoa Corp and Best Buy Inc in the US. The extensive factory closures and travel bans that we are seeing in many parts of the world due to the virus outbreak will have an impact on global economic activity and this will in turn impact the profits of many companies.

In the case of Apple Inc., their management indicated that production has slowed or been halted in China due to the virus outbreak and whilst it is starting to resume, the company is experiencing a slower return to normal conditions than had been anticipated. Apple generates about 15% of its revenue from China, and many of its products are manufactured there.

As we hear about the negative effects on some companies there are also some positives. Gilead Sciences Inc., a drug company, is working with Chinese authorities to test its antiviral drug, Remdesivir, as a treatment for people with Covid-19. The company suggests this drug has shown positive signs in preliminary testing. It had positive effects in treating Middle East respiratory syndrome (MERS) and SARS, both of which are also coronaviruses. Its share price has risen in the recent correction.

Further, the Australian dollar has also fallen. This fall is a positive for all Australian exporters and for companies that have large operations offshore. These include James Hardy, Brambles and Amcor. While they are not completely immune to a downturn in economic activity, these companies earn US dollars and pay their dividends in Australian dollars. These dividends become more valuable when the Australian dollar weakens as it has recently.

These types of markets, where uncertainty and fear are leading to many investors selling indiscriminately – while not that frequent – will occur from time to time.

As investors, it is important to understand that whilst the risks of recession have increased marginally in some parts of the world, this correction is occurring at a time when many global share markets were registering record new highs on investor optimism and importantly record low interest rates.

It was the view of the CARE Investment Committee even prior to the correction, that some share markets had become overvalued in the short term and the Money on the Move framework suggested that for new entrants to the market, a high Cash Reserve was prudent within portfolios. Valuations have become fairer and it may be time to begin deploying the Cash Reserves at these more attractive prices as appropriate.

The CARE Investment Committee, in following our investment philosophy sought to conserve capital by reducing the exposure in the top 100 global companies (IOO.AX) through the Active portfolio and increasing fixed interest exposure through the Betashares AAA exchange traded fund.

Ultimately issues such as Covid-19 usually present an opportunity given they have a temporary impact on the economy which can recover quite quickly once the issue resolves. The Investment Committee will seek to reinvest the funds as market volatility abates and remains vigilant to sound investment opportunities for the long term as markets become better value.

 

Emmanuel Calligeris

Chairman, Investment Committee


 

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