How does COVID-19 affect markets? - Raiz Invest

On 20 February, the bellwether ASX200 index closed at 7162 – a record high. On the 19th of March , its close at 4747 points represented a drop of 2415 points or 33.7% from this high point. To state the obvious, the actual and potential economic impact of COVID-19 (coronavirus), globally and locally, has markets spooked.

It’s the very unknowns about this virus, when coupled with the fact there is no vaccine, and lack of clear global government action, that is fuelling public anxiety and investor panic.

In this volatile investment environment, investors need to take a deep breath and hold their nerve. Like all crises that afflict the markets, such as the Global Financial Crisis, the dot.com crash, or the Black Monday 1987 crash (Tuesday in Australia), it will pass, and markets will recover.

All ordinaries index since 1987
Source: Bloomberg. Data accurate as at 13-03-20

Many of the companies listed on the stock exchange have sound fundamentals that will not be significantly impacted by COVID-19.

Companies that are well-managed, hold cash reserves, have revenue streams largely immune to the economic fallout from COVID-19 and with strong growth prospects had those qualities on 20 February – and still have them today.

In fact, there will be companies that could benefit from the changes in consumer behaviour due to the virus.

At Raiz, we completed a capital raise in December 2019, so have a strong cash position and are well funded. Our flat monthly fee model means our revenue stream is largely immune to the market fallout.

The systems and processes we have put in place at Raiz would allow us to serve our users even if there were a Government decision to effectively lock down the country.

We have taken all possible steps to ensure the business can operate normally with all staff capable of working remotely to maintain the highest level of service.

None of this is to minimise what is happening, or the real economic consequences it’s having and the hardship it could cause to employees in certain sectors such as hospitality or tourism.

Indeed, what is happening is a reminder that humans are not invincible, and that a microbe can have a huge impact on the world we live in.

Markets, unfortunately, do fall when such uncertainty takes place – sometimes sharply – and the worst possible response is a knee jerk reaction. Investment is a long-term game, and the events of recent weeks are a sober reminder of this.

Remember, investing small amounts regularly, over time, consistently, and no matter the market conditions, could help you gain financial experience and build a savings base.

 


 

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Past return performance of the Raiz product should not be relied on for deciding to invest in Raiz and is not a good predictor of future performance.

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