It has been a turbulent start to the year with Australia beginning the recovery process from the tragic bushfires followed by the threat of a global pandemic with cases of the coronavirus increasing across the globe.
If we look at previous incidents of viral outbreaks, such as SARS in 2003 and Swine flu in 2009, short-term corrections were within the range of 5% to 15%. These corrections were followed by strong rebounds. The consensus view is that global growth will be down in the first quarter of the year as a result of the coronavirus with the key variable being how long the threat of the virus persists.
While history is a useful guide in this case, it must be said that the effect of this epidemic is likely to be greater given China’s dominant presence in the global economy, given the faster spread of the disease and the measures taken to combat it. The extended closure of Chinese industry, restrictions on people movement, disrupted supply chains, declines in key commodity prices, bans on Chinese travel and the flow-on effect to confidence will severely hamper growth in China and the countries and regions most heavily reliant on China.
From an Australian equities perspective, we are likely to see earnings outlook downgrades across a number of sectors, at a time of elevated valuations and a sub-par growth outlook.
While earnings across the Healthcare, Consumer Staples and Infrastructure sectors should be relatively immune to recent events, based on Lonsec’s initial estimates, 2020 earnings estimates for the Resources (Energy, Iron Ore and Copper), Tourism/Travel and Consumer Discretionary sectors are likely to see significant one-off earnings revisions, capturing the impact of the coronavirus outbreak and the recent bushfires across Australia.
However, such downgrades are unlikely to impact the long-term investment thesis for most companies and should be regarded as short-term headwinds, reflecting a series of one-off unfortunate events.
While there is a high degree of uncertainty regarding the coronavirus outbreak, this event should not pose a long “tail risk” for global markets should the outbreak get out of hand. This will be a challenging period for investors, where factors other than fundamentals are having a material impact on the trajectory of markets.
In such an environment, we believe opportunities will present themselves for short-term investors, and ensuring that your portfolio is diversified will be very important in navigating an increasingly volatile market environment.
One way would be the use of First Mortgages where loans to borrowers are secured against Australian Property for a term of up to 12 months. Rates are fixed from 8% and above
At MASU current offering pays 12% (interest paid in advance) for a term of 12 months secured against 55% of a going concern property in Victoria.
To register your interest for this mortgage please contact Martin Speiser at Martin.Speiser@masu.com.au or reach us on (02) 8297 6666