As we all start the journey to getting back to a new type of normal we should all demonstrate caution and return with some trepidation and take care, keeping the social distancing rules in the back of your mind. With the sharemarket stabilising since hitting its low point in late March, investors are feeling a little better about the state of their portfolios. However, there is still a lot of uncertainty with regards to the impact of Covid-19 on the economy. Restrictions are being eased and the curve is flattening but we are still hearing about new cases and deaths. There have been recent positive reports of anti-viral drugs and many are hopeful of a vaccine. However, at the same time, there are many fears of a second wave of the virus as we near closer to winter. With all this uncertainty, it is hard not to ponder what could be in store for the rest of the year. Of course, I would love to have a crystal ball and know what is going to happen, instead let’s look at a couple of the key questions on many people’s minds.
Have we seen the bottom of the share market?
The market has been recovering after its low on the 23rd of March. We have already seen the bottom of the share market, but ultimately the jury is still out. If we do not see a dramatic increase (second wave) of new Covid-19 cases, then chances are good that we have seen the bottom.
What is going to happen later in the year when the government stimulus packages finish?
The government has committed billions of dollars to stimulus packages to do its best to keep the economy running, or at least hibernating. Without this stimulus, the economic situation would be a lot more dire. The federal governments JobKeeper and JobSeeker programs are set to expire in September, the same time the banks are set to lift their loan deferrals. This will be a real test for the economy as many Australians will lose their stimulus payments and may not be able to find employment.
How will house prices perform?
The Australian property market had a positive end to 2019, buoyed by a Coalition election victory with policies supportive for the property market.
It is hard to see there not being an impact on house prices because of Covid-19. With Australia likely to enter a recession with two negative quarters in March and June, and unemployment on the increase, this is all but certain to flow through to the property market.
When the stimulus measures end, if unemployment spikes and people cannot meet their loan repayments, we could see a flood of property supply on the market due to forced sellers.
The consensus is that we could see a 5% to 10% decline in the property market, however, there are some more extreme views that the falls could be as high as 30% in some parts of the market. The severity really depends on how quickly the economy can get back up and running with people returning to, and securing work.
Is now a good time to invest?
In short yes. Now is always a good time to invest with the right strategy. Timing the market is fraught with danger. Returns from cash and term deposits are at record lows and do not look to be increasing anytime soon. For those investing now, their entry point is some 20% lower than if they had of invested late last year or earlier this year. While there are no guarantees we will not see a lower market in the short term, we subscribe to a long-term investment approach at Create and Protect.
While the economy may be in for some pain, the share market and the economy do not always move in perfect synchronisation. Share markets are forward-looking and can bounce quickly.
As we currently stand, there is light at the end of the tunnel for Australia. Provided Covid-19 can be contained with minimal damage to the economy, we might have a more positive end to 2020 than appeared to be the case a couple of months ago.
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