30 April 2020 | David Cassidy
Global equity markets have rebounded after a dramatic c35% sell-off (c36% for Australia) that occurred in the space of just over one month as the world was gripped by the fear of the impact of the COVID-19 global pandemic.
The almost equally dramatic c25% revival (c15% for Australia) has been driven by 3 factors;
The debate now largely rests on whether equities are currently too bullish on the economic re-opening scenario, or whether stocks are still oversold in a longer term context. US equities are c16% from their February highs, while Australia is c25% from its peak.
In our view this seems, at least to some extent, to be a debate around time horizons rather than polar opposite view points on market prospects.
It is possible equities have run too hard too fast (particularly the US market) but we still believe the bigger picture (12 month plus) outlook for equities is positive. This attractive medium term case for equities is our key message.
Equities may be short term overbought but we disagree with the notion that equities are expensive.
We do concede that stock-markets have bounced hard and there is still significant uncertainty ahead. Indeed we can’t completely rule out the bear case that infection rates re-accelerate materially and stocks either find new lows, or significantly retest the lows of March 23.
We see this is a risk case that needs to be considered as part of our diversified asset allocation strategy but our base case view remains constructive on risk assets.