Asset Allocation Strategy - Second Quarter, 2020

30 April 2020

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;

  1. Unprecedented policy support
  2. Peaking infection rates
  3. Rising hopes for a staged re-opening of the global economy.

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.

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Wilsons is a financial advisory firm focused on delivering strategic and investment advice for people with ambition – whether they be a private investor, corporate, fund manager or global institution. Its client-first, whole of firm approach allows Wilsons to partner with clients for the long-term and provide the wide range of financial and advisory services they may require throughout their financial future. Wilsons is staff-owned and has offices across Australia.


Disclaimer: This document has been prepared by Wilsons Advisory and Stockbroking Limited (Wilsons) (AFS License 238375, ABN 68 010 529 665). In preparing the information in this document Wilsons did not take into consideration the investment objectives, financial situation or particular needs of any particular investor. Before making any investment decision, you should consider your own investment needs and objectives and should seek financial advice.
In preparing the information in this document Wilsons did not take into consideration the investment objectives, financial situation or particular needs of any particular investor. Before making any investment decision, you should consider your own investment needs and objectives and should seek financial advice. Past performance is not a reliable indicator of future performance.