Share Market Volatility Amidst Covid-19

Markets are highly variable when it comes to uncertainty and have reacted accordingly to the outbreak of Covid-19. Governments around the world have moved swiftly to prevent further spread of the virus, imposing social distancing rules and forcing large sectors of the economy to reduce their activity, with some in a complete halt. As a result, we have seen increased levels of unemployment around the world and significant financial stress for businesses, which has impacted the share market. Shares dropped sharply from their highs in February to their lows around 23 March, Australian shares lost 37% and global shares fell 34%. Since that low, shares have rallied in response to fiscal stimulus and virus containment measures by governments, recouping some of the initial losses.

The share market volatility is a normal response to the significant disruption Covid-19 has brought upon the economy. We may continue to experience high levels of volatility during the short term. However, history has taught us that this disruption will most likely end and markets will eventually recover as they have in the past. The graph below shows the different events that have shocked the Australian stock market since 1938.

 

*Source: Market Index based on all ordinaries: Australian Shares 1938-2020 (Log Scale)

Understandably many investors feel worried about the value of their portfolios and some have thought about cashing in their investments to prevent further drops. However, whilst these disruptions are undesirable, it is important to keep in mind some key aspects:

  • Although it sounds tempting cashing in your investments to prevent further drops, by doing so you will be locking in your accrued losses and importantly you may not be able to participate in the market upturn.
  • It is essential for individual investors to manage the behavioural impulses of emotional buying and selling that can come from following the market’s ups and downs.
  • Taking a rational and realistic approach to investing—during what seems like a short time frame for capitalizing on euphoria or fearful market developments—is essential
  • Staying the course through short-term volatility is the key to longer-term success as an investor.
  • Share market investments are long term. Asparq is an advocate of a long-term horizon for share investments, giving enough time for these investments to recover once the economic disruption has ceased.

At Asparq we appreciate that current events can be unsettling. If you are concerned with the economic environment and its implications on you financial wellbeing, we encourage you to speak to your Financial Adviser at Asparq, so you can discuss your strategic and investment options amidst the current environment.


Disclaimer: The information contained herein is of a general nature only and is not intended to be relied upon nor is it a substitute for appropriate professional advice. Whilst all care has been taken in the preparation of the material, it is not guaranteed to be accurate. Individual circumstances are different and as such, require specific examination. Asparq cannot accept liability for any loss or damage of any kind arising out of the use of or reliance upon all or any part of this material. Additional information may be made available upon request.

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