Investor update: 27 April 2020

PM says we’ve turned the corner but where does this road lead to?

The week that was: PM says we’ve turned the corner but where does this road lead to?

  • Restrictions easing but how will we mitigate a second wave of pandemic cases?
  • How are markets faring?
  • Sustainable funds continue to outperform the wider market. Is this COVID-19 induced or an otherwise growing trend?

Restrictions set to ease but how will we mitigate a second wave of pandemic cases?

Last week saw parts of Europe easing restrictions with Denmark, Norway, Germany, Switzerland and Austria among those taking steps to end the lockdown and reopen services from schools and shops to museums and zoos.

Denmark’s Prime Minister Mette Frederiksen acknowledged that this process will be a delicate balancing act, while the Norwegian government has followed countries like South Korea and Singapore by launching a voluntary virus-tracking app.¹

Countries that went into lockdown later on, such as the UK, have yet to outline when or how restrictions will be eased. While in the US, despite a continuing increase in infections, authorities appear determined to reopen the economy sooner rather than later.

China is now well advanced in its lockdown exit and beginning some semblance of normal daily life, though concerns of a second wave were raised by neighbouring regions, such as Hong Kong, following the large numbers of people visiting tourist sites.

Looking closer to home, New Zealand eases back to stage three restrictions and Australian Prime Minister Scott Morrison last week declared that we were on the ‘road back’ and have reached a ‘turning point.’ ² This is seen in the resumption of elective surgeries and NSW’s premier announcing students will begin to return to school early May.

As we enter the easing process, Australia will hopefully take cues from other countries and enter this phase with caution.

How are markets faring?

Last week financial markets fared well posting solid gains in equities in excess of 20% from Mar 23 lows, while the credit markets also looked healthier with a return of liquidity to reduce the high levels of volatility recently posted.

However, a sudden collapse in the oil price turned attention to just how weak underlying global demand is. Although the short-term reason for the collapse was due to the US’ lack of oil storage capacity, the weaker prices have dampened overall sentiment.

We enter the week with markets once again nervous about the full extent of COVID-19’s impact on the global economy and the underlying health of corporates.

Sustainable funds continue to outperform the wider market. Is this COVID-19 induced or an otherwise growing trend?

As mentioned in last week’s update, we are seeing a ‘new normal of sustainability’ as ESG and sustainable funds are weathering the volatility and outperforming benchmarks. This leads us to question: why are we seeing such a rise?

Chief Investment Officer James Cook explains that specific characteristics of the coronavirus-induced market crisis meant that some sectors, such as health and technology, naturally outperformed others. The oil price war, occurring concurrently with the onset of COVID-19, directed investors away from oil. Climate change has been at the forefront of leaders’ radar for the months leading up to the pandemic - highlighted strikingly by Australia’s nightmare bushfire season.

“Investors are looking long-term and avoiding companies or industries with higher debt levels – moving toward sustainable industries. Oil is out and as talks on the impacts of climate change ramp up, investors are looking to sustainable industries.

“As such, it is not one factor here that has led to the increase in ESG and sustainable investing, but simply a shift towards a new kind of normal,” he said.

This new standard of ESG investing has been seen not only in the US and Australia, but also Europe as a survey by Cerulli Associates released this month found 76 per cent of European banks polled were bracing for a surge in demand for ESG funds.³

Stay safe and well,

David Brennan, Director - Distribution

¹Simon Fradon, World Economic Forum, These European countries are starting to lift their coronavirus lockdowns, published 20 April 2020, accessible at: https://www.weforum.org/agenda/2020/04/these-european-countries-are-starting-to-end-their-lockdowns/,accessed on 22 April 2020.

²The Strait Times, Australia eases restrictions on elective surgeries and to reopen schools as coronavirus infections slow, published 21 April 2020, accessible at: https://www.straitstimes.com/asia/australianz/australia-edges-towards-reopening-schools-as-coronavirus-infections-slow, accessed on 22 April 2020.

³The Asset, European investors embracing ESG while looking to cut costs, published 21 April 2020, accessible at: https://esg.theasset.com/ESG/40228/-european-investors-embracing-esg-while-looking-to-cut-costs, accessed on 22 April 2020.

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