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11 March 2020

March Market Update

Market volatility surged over the past week with investors becoming increasingly concerned around the potential impact that the coronavirus could have on the global economic growth. The number of cases increased outside of China, particularly in Italy which has now risen above South Korea’s infection rate.

Further dampening sentiment was Oil plunging by 10% on Friday and as much as 30% on Monday, following OPEC’s failure to strike a deal with Russia. Saudi Arabia reacted by slashing its prices, potentially getting set to ramp up production which led to fears of a major price war. This came as a shock to the global oil markets which had already been hampered by a soft demand outlook from the coronavirus, and now facing a supply headwind due to the actions of the major oil-producing nations. The fall in the West Texas oil futures recorded its largest daily percentage drop on record, exceeding the decline recorded during the Gulf War in 1991.

The volatility in the oil price pushed the US equity futures down by more than 4% and had a spillover effect into the Australian market which closed 7.3% lower on Monday, in the worst one-day session since the global financial crisis. The US market followed on to end 7% lower on Monday night.

The Australian and Asian markets bounced by 3% on Tuesday on the news that Donald Trump will be potentially injecting a very generous fiscal stimulus package.

The TWD Investment Committee met to discuss the recent volatility in the markets and remain comfortable with our portfolio positioning which are fully diversified and structured to withstand volatile market conditions such as the one we’ve recently been experiencing.

Over the past year, the team has enhanced the robustness of the portfolio by removing some exposure to passive ETF investments which were replaced by more active fund managers who tend to provide better downside protection in falling markets. The addition of alternative assets and funds to the portfolio provided further diversification benefits, as they’re uncorrelated to the equity and bond positions.

Overall, we remain confident that our fully diversified approach to portfolio construction will be able to assist you in meeting your longer-term investment goals.

Author: Michael Ron