Understanding market volatility in uncertain times

23 March 2020

As investors digest the impacts of Coronavirus and the fall in oil prices on portfolios, markets have continued to be volatile.

While market drops can be unnerving to watch, the strategic diversification and active components within Booster’s portfolios are working well to ease some of the downside risks. Our unlisted investments via Tahi and our Private Land & Property Portfolio have helped ease the effects of the volatility, and the global share investments within our multi-sector funds have continued to outperform the market’s decline. Within Conservative and Balanced funds, cash and fixed interest investments have smoothed the outcome. Lastly, the past two years delivered solid gains that put portfolios in good stead ahead of share markets’ recent fall.

After a slow start, we’re starting to see more substantial support action from policymakers. Interest rate cuts to essentially zero in the US, NZ, Australia and UK show the commitment of central banks to deploy liquidity to support financial markets through the containment period. This comes alongside further ‘Quantitative Easing’ measures, which we have now also seen introduced in NZ. The words of US Federal Reserve Chair, Jerome Powell, when introducing their recent policy changes give a good sense of the spirit behind the moves: “We’re coming at this hard and strong, and there is no limit.”

However, the necessary economic support will be in more direct steps to ease the inevitable cost of disruption for businesses and workers, as well as the healthcare requirements. Initial moves such as suspension of interest payments on mortgages and small business loans in Italy, along with wage subsidies for businesses, have set a precedent that’s being rolled out in varying shapes across the globe. In recent days we’re seen stimulus packages announced in New Zealand and Australia; and following initial financial relief of up to $250bn in the US, announcement of a further US support package of over US$1trillion is expected. 

We know that share markets hate uncertainty, and that the near-term looks tough for many. However, we also know that history suggests the mass effects of disease outbreaks ultimately run their course. We’ll continue to monitor the situation closely, and adjust our approach as required.

In the meantime, it remains important as ever to separate the very visible near-term challenges from the long-term outlook for markets, which have a consistent record of ultimately seeing through the challenges from global shocks. A well-considered investment plan, based around your own situation, goals and investment timeframe, continues to be as important as ever. We encourage you to reach out to your adviser if you are in any doubt or need any support in seeing it through.

Nic Craven

By Nic Craven

Senior Manager - Research