Covid-19, Elections in NZ and the US, and New Zealand’s economy - a general market update

For most of this year, worldwide lockdowns have been imposed, lifted to varying degrees, and often reinstated. Even with these measures, Covid-19 has unfortunately continued to spread and to date there have been in excess of 33 million cases globally. For comparison, there were 10 million cases at the start of July. 

The economic impact on countries has been severe. Many countries are reporting some of the largest quarterly GDP declines in their history. These include Australia (-7%), the USA (-9.1%) and the UK (-20.4%). New Zealand has also had its share of economic pain, with a quarterly decline over 12%.

We are starting to see the beginnings of spring in the Southern hemisphere and despite battered economies and the ongoing pandemic, equity markets have begun to test new highs. This is encouraging as the markets are forward looking. Investors are seeing positive future economic signs among the dark clouds. A better than expected second-quarter earnings season, and the increasing potential for a Covid-19 vaccine, have improved investors’ enthusiasm.

In the US, albeit earnings were down 33%, 84% of companies beat expectations. This rally has been driven by massive US technology companies like Apple, Amazon, Alphabet (the parent company of Google), Microsoft and Facebook. Apple, after becoming the first US company valued at over US$1 trillion two years ago, became the first US company to be valued at US$2 trillion as its share price nearly doubled from its March 2020 lows. This vastly outstripped the wider US markets. Such rapid gains also come with the potential for rapid declines. In early September, those US technology companies saw their share prices decline between 4% - 8% in one day. Apple’s 8% fall wiped US$150B off their share value. For comparison, that is roughly the size of the entire NZX Equity Market.

Overall, the equity markets have rewarded those who remained invested, but the markets are still volatile, and gains are not evenly spread. Some companies excelled, while others failed.

The year is not over

As much as we may wish to consign this year to the rubbish bin of history, you would have to be very foolhardy to think there are no more surprises in store for us. 

In the coming months, we will see the result of two elections which will have a significant impact on us – in New Zealand and the United States. Current polls suggest a Labour victory here, and a Joe Biden victory across the Pacific, but caution should be exercised when looking at polls. The last elections for both countries had strongly favoured candidates, Bill English in New Zealand, and Hillary Clinton in the United States and the rest as they say is history.

Regardless of who is in power, they will be faced with huge debts and very trying global economic conditions. There are some encouraging signs, such as Europe’s €750 billion recovery fund which is helping to restore confidence in their markets, along with both China and the US seeing their economies improving. Swift action has helped cushion the economic impacts, but second waves of the virus, such as that in Melbourne and Europe, remind us that until a vaccine is available, the battle continues.

What to do

The share market crash in March this year, was one of the fastest declines in history, but the rapid rebound was also one of the fastest. Investors who were able to keep their nerve and remain invested were able to ride out these turbulent times.

Given the uncertainties, a well-diversified portfolio makes sense, ensuring that you benefit in scenarios such as a vaccine being announced, or the recovery being slower than anticipated.

A key to getting through these trying times is getting the right advice. Your financial adviser can help explain what is going on and provide advice on what you can do in your particular circumstances. 

The information contained in this article is of a general nature only and does not take into account individual circumstances. It is not intended to provide comprehensive or specific financial advice. Before making an investment decision you should talk to your Authorised Financial Adviser.

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