Flattening the curve without flattening the economy.
The week that was: Flattening the curve without flattening the economy.
Looking back over another eventful week, the Australian government used modelling to indicate whether we are on track to containing the pandemic, while in the USA and in particular, New York, infection numbers continued to rise but there are signs the virus could be peaking in certain regions. In China, Wuhan celebrated the end of its 76 day lock-down as the wider country continues to experience early signs of a recovery.
The financial markets showed some resilience across the week as well. Australian Equity markets posted gains, despite wholesale dividends cuts across most sectors, particularly financials. The Australian banking and superannuation regulatory arm APRA, issued strong guidance to members to limit discretionary capital distributions in the months ahead, to ensure that they instead use buffers and maintain capacity to continue to lend and underwrite insurance, which includes prudent reductions in dividends. This has led to a dramatic revision to the expected level of dividends to be paid from the higher yielding banks – the phenomena witnessed across Australia, UK, Europe, New Zealand and the USA.
Credit markets continued to post an improvement as central financial authorities continued to pump liquidity into the financial system, relieving some of the short term stress seen over recent weeks as many market participants rushed to cash.
Curves flatten but warning of ‘explosive resurgence’ if measures relaxed.
Australia’s long awaited modelling, founded on two scientific papers,* was used last week to determine the trajectory of the pandemic curve. There was an emphasis on the need for a six-month time frame for Australia’s health and economic measures, compared to the three-month plans in place in other countries.
Last week, University of Melbourne Professor James McCaw announced that if we relaxed any of the current measures we would experience an ‘explosive outbreak’ driven by community transmission. While Professor Jodie McVernon, from the University of Melbourne and one of the top epidemiologists advising the government, announced that due to the array of measures that have been applied so rapidly and concurrently, singling any of them out was extremely difficult.
"I could overlay any number of curves on a model and it would show that things do better and better together,” she said.
So that leads us to ponder - Will our hard work pay off?
It appears that our mix of measures working concurrently will pay off - if we stick to them. The modelling has also provided us valuable insight into a much needed time-frame. We believe that this time-frame has provided clarity and will be beneficial in our economic forecasting.
Looking at similar trends in history and how China is appearing to recover from the pandemic, we are somewhat optimistic that once the wave passes, we too will experience a bounce back. This has been evident for China such as its gradual resumption of work at its factories and provinces.
Managing a health and economic crisis concurrently requires a delicate balance, so that we can flatten the curve without flattening the economy.
Ethical investing critical in times of crisis
While many of the headlines in relation to the economy, investment markets and interest rates can be concerning, U Ethical continues to manage our portfolios applying the same rigorous process we always have.
Looking beyond the short-term, our in-house investment team continues to focus on diverse, sustainable and responsible assets that also make a positive impact on our planet. This methodical approach ensures we’re well placed to navigate these changing circumstances.
Finally, as part of the Responsible Investment Association Australasia (RIAA)’s 20th year anniversary, they have put together a video demonstrating the development and evolution of the responsible and ethical investing industry.
This video reminds us of the important need for the finance sector to step up and continue this development – especially in times of crisis. We’re thankful not only to be a part of this association, but to our network of investors who are furthering the development of the industry and helping U Ethical provide better investments for a better world.
Click on the image below to view the video:
Wishing you a safe and happy week.
David Brennan, Director - Distribution
*Research paper 1: Modelling the impact of COVID-19 in Australia to inform transmission reducing measures and health system preparedness. Moss R (PhD) 1 , Wood J (PhD) 2 , Brown D (MBBS) 3 , Shearer F (PhD) 1 , Black, AJ (PhD) 4 , Cheng AC (FRACP) 5 , McCaw JM (PhD) 1,3,6 , McVernon J (FAFPHM) 1,3,7
Research paper 2: Assessing the risk of spread of COVID-19 to the Asia Pacific region. Freya M. Shearer1, James Walker2, Nefel Tellioglu3, James M. McCaw1,4,5, Jodie McVernon1,4,6, Andrew Black2, Nic Geard1,3,4
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