Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 348

Welcome to Firstlinks Edition 348

  •   12 March 2020

There's only one subject that matters in financial markets at the moment, and this edition features updated views on coronavirus from leading experts such as Roger Montgomery, Hamish Douglass, Charlie Jamieson and Justin McCarthy.

Much of the market reaction to coronavirus seems overstated, with the S&P/ASX200 down 20% from recent highs. Nevertheless, habits are changing in many parts of the world. People are working from home, schools are closing, hoarding is common, events and travel are being cancelled and supply chains are breaking down. Markets fall by the elevator and rise by the stairs during severe uncertainty, but volatility is a cost for the long-term benefits of holding equities.

It feels especially strange as I am writing this from 12,000 kilometres away in Buenos Aires, and South Americans don't seem overly worried about the virus. The Australian media coverage implies international travel is almost at a standstill, but every plane I've flown on recently has been full. There is no confirmed inflight transmission of the virus anywhere in the world. Going through three airports in the last week, few passengers were wearing masks, and there were no masks in the cities. I just shared an expedition ship for 10 days in Antarctica with 200 passengers and crew from all over the world and nobody wore a mask at any time.

Australia's toilet paper panic looks weird from afar. There's no equivalent here with packed supermarket shelves, and there is not, as Alan Kohler says, 'a worldwide run on bog rolls'. Come on. Australia imports only 1% of its packaged toilet paper and industry experts say shelves would be fully stocked in two days if people stopped panic buying. There's no shortage of pulp either locally or imported. At least we know what to bring back as presents, and perhaps the second picture below will give someone a royal flush.

We know little about the long-term effect of the virus, but investors want to understand the possible impact on their portfolios. As Ray Dalio, Chairman of Bridgewater, said on LinkedIn:

"I don’t like to take bets on things that I don’t feel I have a big edge on, I don’t like to make any one bet really big, and I’d rather seek how to neutralise myself against big unknowns than how to bet on them. That applies to the coronavirus. Still, there’s no getting around having to figure out what this situation is likely to mean and how we should deal with it."

The Johns Hopkins University Coronavirus Global Cases Monitor provides an interactive dashboard. At the time of writing, it shows 102,471 confirmed cases (80,651 in Mainland China) but only 3,491 deaths, of which 532 were outside China. Most of the deaths are older, vulnerable people. It doesn't yet sound worthy of a global panic, especially in the context of what the world already deals with in other ailments such as influenza. As Time Magazine records for US data from the Center for Disease Control and Prevention (CDC) last year:

"In total, the CDC estimates that up to 42.9 million people got sick during the 2018-2019 flu season, 647,000 people were hospitalized and 61,200 died. That’s fairly on par with a typical season, and well below the CDC’s 2017-2018 estimates of 48.8 million illnesses, 959,000 hospitalizations and 79,400 deaths."

We will need to learn to live with corona in the same way we cope with the flu. Morningstar's US analysts have concluded:

"We expect coronavirus to resemble a severe but manageable flu with treatments available soon."

But the reality is that global trade is falling and travel arrivals into Australia are down significantly. Flights are being cancelled from key markets, including crucially for Australia, from China. We rely on 1.4 million Chinese visitors a year, with 268,000 temporary visas for Chinese people last year, including 134,000 for students.

It will be difficult to avoid a recession. After a decade of central bank-inspired complacency, the market is rethinking whether stocks and bonds are appropriately priced for the current risks.

This week, Roger Montgomery dives deeply into the corona checking in specific countries, moving beyond the day-to-day market reactions to determine a buying entry point. Emma Rapaport reports on Hamish Douglass's latest Investor Evening, where he encouraged a calm and rational approach to market turmoil, as well as discussing his own portfolio.

In bond markets, where quality government securities have rallied strongly, Charlie Jamieson warns that many weaker corporate names are in for a tough time. Justin McCarthy and Brad Newcombe show the short-term opportunities revealed by panic in the hybrid market.

A reminder that Ashley Owen produced an historical context on previous viruses last week.

Bruce Gregor has checked 35 years of data on how Australian shares react to US stockmarket rises and falls, and provides a useful rule of thumb for future reporting, while Gemma Dale explains how SMSF investors are changing their asset allocations.

Finally, after spending 10 days in Antarctica on an expedition with many other people ticking off their bucket list items, I reflect on how retirement can be a reward for a lifetime of hard work. It's not only travel, but helping children into homes is a priority for those who can afford it.


Graham Hand, Managing Editor

For a PDF version of this week’s newsletter articles, click here.



Most viewed in recent weeks

Why we’re not buying the market yet

The Australian market bounced back last Friday (13th) and Monday (16th) tempting analysts to call the bottom of the coronavirus scare. This is too early as the impact on companies is not yet evident.

Drawdown reductions needed for retirees - UPDATED POLICY

During the GFC, in the face of rapid falls in super balances, the minimum drawdowns required for pensions were reduced by 50% to help preserve overall retirement savings. It's time for a repeat.

What are the possible economic effects of COVID-19 on the world economy?

In a widely-quoted scenario using estimated attack and fatality rates of coronavirus, about 0.07% of the population of the US dies. That's about 230,000 people, which the market is not ready for.

Note to Australia: be more French in the COVID-19 war

Andrew Baker is well-known as a superannuation consultant. Now working in the UK, he was caught in France with his family and is in lockdown. He worries Australian policy was too slow.

Optimism among forecasts of the COVID-19 peak

This detailed analysis of infections, deaths, drugs and vaccines includes an optimistic scenario: perhaps US and Australian infection numbers will peak in early to mid-April with a decline after.

How stock markets recover and the perils of timing markets

Investors who try to time buying and selling shares risk missing the strongly positive days which drive good performance, while over the long term, stock markets will recover from price falls.

Latest Updates


How $200 billion is magically created

Australia is in a relatively good position to borrow $200 billion, with the RBA using printed money to buy bonds in the market. The long-term consequences are better than the alternative.

Investment strategies

Howard Marks' latest on 'Which way now?'

Howard Marks is the largest investor in the world in distressed securities. What does he think after checking the virus positives and negatives, and how much has he changed his mind in only a few days?

Latest from Morningstar

Four stages of a typical bear market - but is this typical?

Bear markets caused by recession fears follow a pattern, but we have never seen anything like coronavirus. If financial stimulus and medicine prove ineffective, all bets are off. 


Small business in path of COVID-19 tsunami

The turning point in this crisis will be when the number of new COVID-19 cases starts to decrease. Until then, can we mitigate the damage to businesses and the economy so that we can snap back?

Investment strategies

Why technology stocks are good for the future

Over the long term, the technology sector has a vital role to make the essential transition to a more sustainable global economy and a cleaner planet. We highlight a few names with strong prospects.



© 2020 Morningstar, Inc. All rights reserved.

The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use.
Any general advice or class service prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, has been prepared by without reference to your objectives, financial situation or needs. Refer to our Financial Services Guide (FSG) for more information. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.