Earlier this year, with COVID-19 seemingly contained to mainland China, many anticipated a local market recovery, with a budget surplus perhaps within reach despite a summer of unprecedented bushfires. The expected pick-up in activity, coupled with a low interest rate environment, helped foster expectations of a 7 to 11 per cent rise in property prices and a continued unfettered running of the bull in equity markets.
But as always, markets tend to take the escalator up and the elevator down.
The forecast for property prices in 2020 has deteriorated to -20 per cent , and the local stock market has tanked some 30 per cent from its highs in mid-February. The abrupt end to the longest running bull market in history has some investors hoarding cash rather than toilet paper, impatiently awaiting the golden opportunity to “buy the dip”.
A range of issues currently affecting both investors and consumers are reflected in CoreData’s COVID-19 Impact Dashboard, which will track in coming weeks and months how the Australian community is responding to the COVID-19 pandemic.
CoreData’s inaugural COVID-19 Investment Pulse Check reveals one third (33.5 per cent) of investors already have, or plan to buy the dip. Almost three-quarters of these investors (72.6 per cent) say this is because they see an opportunity to buy at a discount. Among those sitting on the sidelines, three in five (60.4 per cent) say they don’t have the money to act.
While buying the dip may seem attractive, we are unlikely to have reached the bottom of the cycle, with fiscal stimulus and various policy reform, including early superannuation withdrawal, likely to have a significant yet unclear impact on investment markets.
One would suspect market volatility to continue until the virus is contained, yet the FOMO (fear of missing out) will drive many retail investors into a tumultuous market at a time when even the most experienced are struggling to stave off the bear.
These investors will try to stay ahead of the curve, perfectly timing their investment in a flailing market, but no one rings a bell at the start of the share market recovery.
Almost one in five (18.0 per cent) of respondents in the initial wave of CoreData research, conducted late March, intend to invest directly in equities in the next quarter, despite almost three in four (72.2 per cent) expecting investment market conditions to be at least somewhat worse during this period.
The average investor will likely buy too early, wrongly interpreting a classic dead-cat bounce for a recovery, leaving them likely to succumb to losses on the continued decline. Alternatively, they willbuy too late, and miss hitching an early ride on the escalator ride back up.
This is where advisers have a key role to play. CoreData’s 2018 Value of Advice research conducted with the Association of Financial Advisers (AFA) found financial advice helps enhance net wealth in the face of unexpected events. For most advised investors, advice provides them with greater confidence in financial decision making (81.5 per cent) and overall peace of mind (79.4 per cent).
And yet, CoreData’s current research shows less than one third (31.1 per cent) of respondents have an ongoing relationship with a financial adviser, and only a minority (7.3 per cent) of those without one intend to consult a financial adviser in the next three months.
During economic crises, the value of appropriate financial advice is apparent. However, in times of frugality and reduced discretionary spending, the onus shifts to the adviser to ensure that clients perceive value in the services they provide.
Helping clients better understand and navigate the potential impact of the crisis on their personal circumstances, and their best options for responding, will help alleviate anxiety and decision paralysis, whilst ensuring investors are well informed and equipped to navigate the economic uncertainty.