Closing the book on the March 2020 quarter – what this means for investors

Glasses and book
Kyle Lidbury

Kyle Lidbury

Head of Investment Research, Perpetual Private
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Globally, there are over 850,000 confirmed cases with more than 41,650 deaths, as of time of writing Wednesday morning, 1 April 2020. The US, Italy and Spain have now recorded the highest number of cases, surpassing China to date. In this article, Kyle Lidbury, Head of Investment Research, Perpetual Private, provides an update on how the coronavirus continues to unfold globally and the subsequent volatility we’ve seen in markets over the March 2020 quarter.


The drastic lockdown measures in Italy have started to show signs of success, with a levelling off of the infection rate, however Spain is continuing to peak, with 9,222 new cases overnight and a record number of deaths from the coronavirus in one day with 849 deaths reported on Tuesday.  Even while we’ve seen rates level off, Italy and other countries have already announced that containment measures will remain in place for an extended period of time, at least until the end of May at this stage. While Italy and Spain are seeing the worst of the crisis with death rates of over 11% and 9% respectively, Germany’s death rate is very low in comparison, at around 1% – it appears that widespread testing and early preventative measures have been key, ensuring that healthcare systems can operate within capacity to deal with patients requiring hospice care.

The US

The US has now recorded the highest number of infections globally, jumping from 165,000 yesterday to over 186,000 this morning, with almost 76,000 of those cases in New York state alone. A Navy hospital ship has sailed in to New York Harbour to assist with non-coronavirus patient care (as we’ve seen, coronavirus and ships don’t make for a good combination) while makeshift hospitals have been set up in and around New York City, including a 350 bed hospital being set up at Flushing Meadows, the site of the US Open. New York State and city officials are targeting an increase of 87,000 beds in order to handle the outbreak. The US is still a week or two behind Europe, with the peak in cases still to come and likely to set new records as the crisis plays out.

China appears to be well and truly through the crisis, with a negligible number of new infections and many economic activity indicators pointing towards industry getting back to work. That being said, markets are still waiting for confirmation on trade numbers, which are largely anticipated to remain depressed from the continuing global pandemic.

Confirmed cases graphSource: John Hopkins, Perpetual


Australia has reached over 4,500 confirmed cases and recorded its 18th death as a result of the virus. The federal government continues to announce further lockdown measures, now banning gatherings of more than 2 people, harsher penalties for violating mandated self-isolation and advising high-risk categories of people to effectively self-isolate. The Australian government announced on Monday a $130bn wage subsidisation program which will see employees paid $1500 a fortnight for firms where turnover has declined by 30% during the current lockdown period.  This is the largest support measure announced by the federal government so far and, when taking into account the $66bn and $17.6bn previously announced packages, represents $214bn of stimulus to date – over 10% of GDP and by far the largest combined measures ever released by an Australian government.

Despite the fiscal response, economists predict that this will still not be enough to prevent unemployment from reaching significantly higher levels by the end of the year. A broad range of 7.5% to 14% unemployment reflects the uncertainty and multitude of factors that could swing the result to either end of that range. The OECD has predicted that economic output will drop between 20-25% for advanced economies in the wake of the health crisis. Much is being banked on the fiscal stimulus being enough to ‘bridge the gap’ so that businesses can quickly “stand-up” after the health crisis turns a corner and lockdown measures can be relaxed, at least to some extent.

Market performance

The S&P 500 finished the quarter down 20%, marking the worst quarter since the GFC, while Australia’s All Ordinaries index surpassed the GFC’s worst quarter and marked the worst quarter since 1987, down 25%.

While markets are down significantly from peaks, the S&P 500 at 20% down has still not given back all of the gains made during 2019 – a year when the index was up almost 30%. It's arguable at these levels the market is still not fully pricing in the possibility of a deep and protracted global recession. The announcement of massive fiscal stimulus measures globally have helped markets pull back from mid-March lows, however with falls of greater than 50% during the GFC, equity markets still have more downside potential.

Markets have had up and down days, however it has been the significant size of the movements that has been the most prominent characteristic compared to ‘normal’ market conditions. Large upwards movements in markets are not indicative of markets ‘turning a corner’ or ‘stabilising’, and a recent article by Michael Batnick from Ritholz Wealth Management noted that the 25 best and 25 worst days of the S&P 500 since 1993 all took place during significant drawdowns on markets – on average, down 33% from the previous peak. Per the chart below mapping drawdowns in the S&P 500 since 1993, you can see the red dots plotting the 25 worst days and green dots plotting 25 best days.

S and P 500 GraphSource: The Irrelevant Investor, Michael Batnick CFA

Why investors shouldn’t try to time the markets

Moving beyond equity markets, while we’ve seen stress in credit markets and a significant widening of the spread between corporate bonds and sovereign bond rates, we have also seen a much lower levels of liquidity. How this can be observed is that many funds in the market have revised upwards buy/sell spreads, particularly on fixed income funds, to recognise the fact that the cost of transacting in these markets is now higher than it was prior to the current crisis. This again points to why trying to trade or tactically shift portfolios can end up costing you more than you potentially save during crisis environments.

A useful chart recently published by PIMCO demonstrates how, on average, investors trying to time entry and exit points for markets can impair longer-term return expectations. The chart below demonstrates an average investors’ experience during the GFC if they had moved to cash out of a 60/40 US equity/US bond portfolio in response to market moves. While the portfolio is hypothetical, the chart uses actual average flows data as observed by Morningstar in the US. When net flows eventually turned positive in early 2010, it was well past the significant rally in markets and on average, investors had underperformed.  We see this phenomenon time and time again, leading to the saying that “investors, on average, underperform their investments”.

Volatile markets graph

There are still many scenarios that can play out, which will determine the length, breadth and depth of the crisis. In turn, the economic consequence of lockdowns and the ability for economies to recover is highly uncertain with many different factors and variables at play, leading to the continued volatility in markets. The roll out of significant fiscal measures helps to underwrite some of these unknowns, however it is still uncertain as to how successful these programs will be at achieving their objectives – we can take comfort in the fact that governments are acting and not holding back in terms of adding stimulus to the economy.

There are still many other factors at play, some are positive, such as the possibility of preventative drugs being found that can materially ease the burden on healthcare systems or, on the downside, a second wave of infection rates in China or elsewhere and a need for rolling lockdowns, which would absolutely prolong the economic damage from the crisis. One banking executive has stated, “There is no playbook for this.” And the truth is that no one knows what the actual outcome will be. While China’s experience gives some hope that the crisis can turn, we can already see with infection rates and death rates in Europe and other countries, that the effect of COVID-19 could be much more serious and deeper as it plays out globally.

Our position

In the midst of the crisis and uncertainty, the Perpetual Private investment teams have continued to test and re-test investment assumptions on stocks and securities and have been engaged in steady dialogue with the investment professionals that manage our clients’ assets. While the overall markets are in a state of turmoil, we take comfort that our managers are continuing to find opportunities to put client capital to work and take advantage of mis-pricings to position portfolios well for the economic recovery that will eventually occur. For managers that have dry powder in reserve and are sitting on cash, we are now more optimistic than even just two months ago, as with careful analysis, they will be able to put client money to work on assets at very attractive valuations, even under the assumption that the economic environment will be far tougher than what we’ve seen over the last two years


Visit our COVID-19 Insights Hub for economic and market updates to keep you informed as the situation evolves.

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Perpetual Private advice and services are provided by Perpetual Trustee Company Limited (PTCo) ABN 42 000 001 007, AFSL 236643. This information was prepared by PTCo. It contains general information only and is not intended to provide you with financial advice or take into account your objectives, financial situation or needs. You should consider, with a financial adviser, whether the information is suitable for your circumstances. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information. The information is believed to be accurate at the time of compilation and is provided in good faith. This article may contain information contributed by third parties. PTCo do not warrant the accuracy or completeness of any information contributed by a third party. Any views expressed in this article are opinions of the author at the time of writing and do not constitute a recommendation to act. No company in the Perpetual Group (Perpetual Limited ABN 86 000 431 827 and its subsidiaries) guarantees the performance of any fund or the return of an investor’s capital. Past performance is not indicative of future performance.