We appreciate many of you will be feeling unsettled by the current and unfolding situation impacting our lives and the world’s financial markets. We want to keep you informed of this fast-moving situation which is receiving a very high level of media coverage.
Since our update last week, markets have continued to experience heightened levels of volatility as a result of the increasing spread of the coronavirus (COVID-19) and significant responses by many governments.
The coronavirus spread has accelerated over the course of a week. Europe is currently the epicentre, whilst containment measures in places such as China and South Korea seem to have markedly slowed the spread. Governments continue to respond by implementing social distancing measures. These range from closing bars and restaurants, shutting borders and for some countries such as Italy and Spain, closing down the entire country.
We have noted in previous communications that whilst these measures slow the spread of the virus, they can carry a high economic price. Further issues can arise when businesses run into financial difficulties, causing knock on problems for employment and banks that lend money to these businesses.
Governments and central banks have tools available to mitigate these economic impacts and limit the spillover to employment and lending. We have already seen action taken by monetary authorities both in NZ and abroad in the form of interest rate cuts and asset purchases designed to reduce stress on the financial system.
Governments too are taking steps to address the economic impact and these are becoming significant. For example, Germany is offering unlimited lending to companies via a state development bank and Australia has announced a substantial stimulus package. The NZ Government today announced a $12.1B package, which at approximately 4% of GDP is a significant fiscal support plan.
Global financial markets have reflected the increased uncertainty and economic impact in lower share prices and higher bond prices. Milford funds have been cautiously positioned since the beginning of February including holding higher levels of cash and reduced exposure to local and international share markets, including low relative exposure to sectors such as oil, banking, travel and tourism.
The outlook remains very uncertain and justifies our ongoing cautious investment position. The current market volatility is extraordinary, and we have seen share markets move close to 10% in both directions over the past week. At times like this is it is worth remembering that market volatility has happened before and there will be a point when the world begins to regain some normality.
Whilst further volatility is expected, Milford’s investment team continue to work to identify opportunities and position funds appropriately for the outlook. As we have said previously, we invest alongside you in our funds and we will be working to navigate through this period to deliver the best outcome we can for our clients.
Please also see the frequently asked questions some of our KiwiSaver clients are asking us. We hope this helps with some queries you may have.
If you would like to find out more, please contact the team.