Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 353

Fear and greed in markets: where to from here?

The past few weeks have been a time of unprecedented turmoil and volatility in global equity markets. Closer to home, the Australian equity market had its fastest 30% fall in the history of the Australian Securities Exchange, with only the 1987 crash coming close in terms of severity. It took a week longer during the 1987 crash to reach the 20% drawdown mark.

However, what has also taken the market by surprise has been the speed of recovery in prices. Since bottoming in late March, many companies have more than doubled in price in just two weeks, ahead of potential earnings downgrades.

Extreme volatility such as this is a sure sign of investor uncertainty and lack of conviction. Equity markets have always been forward-looking, with movement merely reflecting changes in future expected earnings of the companies, magnified by sentiment such as fear and greed.

Where are we now?

To assess where we are in the current equity market cycle, it is important to take stock of some of the economic realities.

Investors’ fears are well-warranted. Western economies have responded to the spread of COVID-19 by shutting down social events, venues and other gatherings, which has seen a vast number of casual staff being laid off. For most OECD countries, over 60% of their GDP lies in consumer spending, and a consumption-led recession will inevitably lead to a material rise in unemployment over the next three to six months.

On a positive note, because equity markets are forward-looking, if authorities are able to control the COVID-19 outbreak quickly, it would see many companies’ earnings bounce back reasonably quickly, particularly with the significant pending stimulus. Trillions of dollars around the world has been deployed to stimulate economies, much of that yet to be spent. Central banks have learned that during times of stress, keeping money flowing in the economy is paramount.

Based on the action plan announced by the Reserve Bank of Australia, the Federal Government and other regulatory bodies, we believe the stimulus plan is sufficient for the current environment. One key variable at this stage is how long we will be in lock-down before consumers can be allowed out to spend the stimulus provided.

Australia has continued to manage the outbreak of COVID-19 much better than most other countries. We attribute this to the early and decisive actions taken by State and Federal Governments to close borders and introduce mitigation strategies to slow the rate of contagion. This, along with world-leading COVID-19 testing, has ensured the epidemic has had a manageable impact on the hospital system.

The focus of investors and the broader population is now turning to when these measures can be relaxed given the extraordinary impact on the economy and Government finances. We expect the Government to take a cautious approach such that the current social distancing and work from home policies will likely, to a large extent, remain in place for some weeks, if not months, yet. However we are hopeful things will start to normalise by the start of the new financial year.

Portfolio positioning

As an active manager, we see current market conditions as ripe for opportunity to add to high quality portfolio stocks, while maintaining an overweight in quality defensive sectors such as healthcare. Stock specifically, the top 10 holdings in the Tribeca Alpha Plus fund have delivered exceptional returns since the crisis hit.

Fisher and Paykel has upgraded earnings twice, largely as a result of the surge in demand for its hospital respiratory products (which account for more than 60% of group revenue).

A2 milk has surprised the market with its resilience across its distribution platforms. Mothers in China flocked online to stock up on quality-branded infant formula and as a strong online player, A2 has been well placed to benefit. This will likely cement its brand in the offline Chinese consumer segment too.

Coles Group is another top holding which has seen significant improvement in its sales as consumers are moving to stock up their pantries. It has also meaningfully outperformed its peers, including Woolworths, which we don’t hold in our portfolio.

More recently, we have increased our holdings in a number of other high quality businesses, including AfterPay and Tyro, both of which have short-term earnings sensitivity to economic conditions.

Our investment thesis for such growth businesses has always been premised upon their future growth opportunity, and the strength and longevity of their respective business models. One quarter of weak earnings does not change our view, although we are regularly testing our assumptions based on current economic conditions and duration of the COVID-19 lockdown. We have little doubt that once the market stabilises, these two businesses will meaningfully outperform. Indeed, at the time this article is written, both stocks have more than doubled since lows reached at the end of March.


Jun Bei Liu is Portfolio Manager at Tribeca Investment Partners. The information in this article is provided for informational purposes only. Any opinions expressed in this material reflect our judgment at this date and should not be relied upon as the basis of your investment decisions.


April 30, 2020

I think its safe to say this virus will be present in most countries until a vaccine is found or perhaps something to take the edge off its severity. Either which way , as clever as we humans can be you don't just serve up a vaccine shot to seven billion people in a couple of weeks. Delivery will take months. In the meantime the world economy will spiral down. Usually I like to think of something positive to cap off something negative. Perhaps in time to come there will be a lot more humble people in the world. That can't be a bad thing?

April 23, 2020

The movement of the market swings and the magnitude on a daily basis are unpredictable which proves to me that nobody I repeat nobody has the faintest idea what will happen next and how long before the markets return to somewhere near normal. The so called experts agree on one thing , they disagree, if you get the drift. I have been in the market since 1963 and I disagree with myself. I believe if you think you can pick what is going to happen next at this moment, you're a fool or a liar, I mean that in a friendly way. The best of luck to you all.

Reader comment
April 19, 2020

Oh! For a crystal ball. They say if the US sneezes, the rest of the World gets a cold. The US has a lot more pain to go from both a health and financial perspective. Sharemarkets are predictive so tend to be ahead of the game except for black swan events. The bottom will occur shortly before the easing of social and business restrictions in the US. Trump is a maverick, risk taker and it is an election year so there is a real danger that easing will occur too early and a second wave results in the US.

April 17, 2020

"One quarter of weak earnings does not change our view". Is that your "view"? There will be only one quarter of weak earnings? I would suggest there will be at least two quarters where earnings for many companies will be decimated or even non existent for a small minority and as to a normalising of conditions thereafter who really knows the rapidity or the extent of a recovery? Risk is being underestimated yet once again.
Analysts are widely using historical earnings estimates while many companies have explicitly withdrawn earnings guidance because they have no idea what they will be. I suspect that revisions to earnings will be large going forward.

April 16, 2020

Down, down, down ... up, up ... down, down ... as if we know where it's going next. Glad I'm not investing for people who rely on me.


Leave a Comment:



COVID-19 and the madness of crowds

Chris Cuffe on why private debt is a hidden gem

COVID-19: Is this time really different?


Most viewed in recent weeks

Stop treating the family home as a retirement sacred cow

The way home ownership relates to retirement income is rated a 'D', as in Distortion, Decumulation and Denial. For many, their home is their largest asset but it's least likely to be used for retirement income.

Welcome to Firstlinks Edition 433 with weekend update

There’s this story about a group of US Air Force generals in World War II who try to figure out ways to protect fighter bombers (and their crew) by examining the location of bullet holes on returning planes. Mapping the location of these holes, the generals quickly come to the conclusion that the areas with the most holes should be prioritised for additional armour.

  • 11 November 2021

Welcome to Firstlinks Edition 431 with weekend update

House prices have risen at the fastest pace for 33 years, but what actually happened in 1988, and why is 2021 different? Here's a clue: the stockmarket crashed 50% between September and November 1987. Looking ahead, where did house prices head in the following years, 1989 to 1991?

  • 28 October 2021

Why has Australia slipped down the global super ranks?

Australia appears to be slipping from the pantheon of global superstar pension systems, with a recent report placing us sixth. A review of an earlier report, which had Australia in bronze position, points to some reasons why, and what might need to happen to regain our former glory.

How to help people with retirement spending decisions

Super funds will soon be required to offer retirement income strategies for members in decumulation. With uncertain returns, uncertain timelines, and different goals, it's possibly “the hardest, nastiest problem in finance".

Tips when taking large withdrawals from super

You want to take a lump sum from your super, but what's the best way? Should it come from you or your spouse, or the pension or accumulation account. There is a welcome flexibility to select the best outcome.

Latest Updates

Investment strategies

Charlie Munger and stock picks at the Sohn Conference

The Sohn Australia Conference brings together leading fund managers to chose their highest conviction stock in a 10-minute pitch. Here are their 2021 selections with Charlie Munger's wisdom as the star feature.


John Woods on diversification using asset allocation

All fund managers now claim to take ESG factors into account, but a multi-asset ethical fund will look quite different from a mainstream fund. Faced with low fixed income returns, alternatives have a bigger role.

SMSF strategies

Don't believe the SMSF statistics on investment allocation

The ATO's data on SMSF asset allocation is as much as 27 months out-of-date and categories such as cash and global investments are reported incorrectly. We should question the motives of some who quote the numbers.

Investment strategies

Highlights of reader tips for young investors

In this second part on the reader responses with advice to younger people, we have selected a dozen highlights, but there are so many quality contributions that a full list of comments is also attached.

Investment strategies

Four climate themes offer investors the next big thing

Climate-related companies will experience exponential growth driven by consumer demand and government action. Investors who identify the right companies will benefit from four themes which will last decades.

Investment strategies

Inflation remains transitory due to strong long-term trends

There is momentum to stop calling inflation 'transitory' but this overlooks deep-seated trends. A longer-term view will see companies like ARB, Reece, Macquarie Telecom and CSL more valuable in a decade.


Infrastructure and the road to recovery

Infrastructure assets experienced varying fortunes during the pandemic, from less travel at airports to strong activity in communications. On the road to recovery, what role does infrastructure play in a portfolio?


The three prices that everyone should worry about

Among the myriad of numbers that bombard us every day, three prices matter greatly to the world economy. Recent changes in these prices help to understand the potential for a global recovery and interest rates.



© 2021 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 ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). 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.

Website Development by Master Publisher.