Lockdown shocks town sending stocks down

25-Mar-2020
Investment
by Michael Davie

 

It is hard to believe that something measuring a mere 120 nanometres or 0.00012 millimetres in diameter can cause so much damage to the health and well-being of our families, friends, businesses, communities and global partnerships.

The coronavirus derives its name from the Latin “corona” (meaning “crown” or “wreath”) aptly named for its crown and wreath like shape. However, the only thing royal about this little menace is that it’s becoming a royal pain in the ASSets of our client’s retirement portfolios.

Speaking of pain in the assets, spare a thought for our sanity as we decided to pull our kids out of school from Monday the 16th of March.

We’ve been home-schooling in order to reduce the pressure on teachers and the community. I have had the kids working on various random projects. For maths, we discussed shares, how to calculate yield and rates of return. We spoke about what an index is and why they are used. For our history lessons, we covered the topics of previous epidemic, pandemic and viral outbreaks of the past. The kids have really enjoyed the variation in content and they tell me they like the concept of spending all day on maths, all day on history and all day on science as opposed to the chopping and changing that occurs over a regular school day.

Despite the tip of the hat from the kids in relation to the school of Davie, we have developed a new level of respect for our educators and what they go through. Who would have thought that a fight could ensue over who gets to research smallpox versus bubonic plague and the Spanish flu? Somehow, my kids found a way to make this a topic worth arguing over….. Arghhh!!!! Debating lessons anyone???

With the learning carnage noisily occurring in the background of our home, the markets have continued to feel the pressure from both panic selling and concerns about the impact of business closures on the health of our real economy. These concerns are certainly not unfounded with rising unemployment forecasts and forward earnings pressure being felt by established businesses.

The oil price has come under intense pressure due to the production coming from Saudi Arabia (OPEC) and the Russians. The sustainability of production levels at the current rates will continue to place the spot price under significant pressure. We believe that the current prices will be unsustainable in the medium term and as such, we have been exploring, executing and anticipating further buying opportunities in this space at present.

As at 2.26pm on the 24th of March, the Australian Market (All Ordinaries) is down 24.91% from the prior corresponding 12-month period. The United States Dow Jones is down 27.14%, the German Dax is down 22.96%, the Hong Kong Hang Seng is down 23.94%, the Japanese Nikkei is down 19.94% and the Chinese Shanghai Composite is down 12.58%.

The growth exposure in portfolios have felt the impact of these market falls over the same corresponding 12-month period. These falls generate a natural level of anxiety for all clients regardless of individual tolerance towards investment risk, differing investment timeframes, phases in life and other pertinent personal factors.

We recognise that changes imposed by the Federal and State Governments cause a heightened level of worry when coupled with existing concerns about your portfolio and the coordinated “profit of doom” media messages.

We want to remind all our clients, that they should call us with any concerns about their financial security and any questions about their portfolio or the proposed stimulus measures announced by the Government. We have taken steps to ensure that we are working effectively from home.

The Government has announced stimulus support and we are working our way through the measures and who is affected and eligible for the support. We will be sending out a market announcement in response to these in the coming days.

Our priority at the moment is dealing with the following:

  1. Liquidity – We are making sure that your portfolios are well-supported with enough liquidity to pay regular income streams and cover lifestyle costs.
  2. Pension Management – The Government has announced coronavirus support measures to allow clients to reduce their minimum pension withdrawals by up to 50%. These minimum pensions are set out by the Government and scaled by age. The reduction will preserve superannuation and retirement proceeds for longer by reducing obligated withdrawals. We do not see this as a big opportunity for our clients, as many of you withdraw enough proceeds to meet your day to day living costs, which generally is in excess of the mandated minimums. Furthermore, unlike people without an adviser, your pension payments come from cash resources, which means you are not forced to sell shares at a loss to meet these minimums.  However, we recognise this will be an advantage for some of our clients and we are in the process of arranging communication to those for whom this is the case.
  3. Portfolio Buying Positions – We expect that the excess cash provisions that our clients hold, will insulate them from the full effects of this downfall in markets. Furthermore, the excess cash allows us to consider further buying opportunities as we navigate our way out of this temporary financial uncertainty and into a recovery plan. We are currently formulating our positions and ensuring that we are poised and ready to dip our toes back in the water.
  4. Currency Hedging our International Exposure – The Australian dollar has continued to fall on the back of the strength in the US Dollar. As a result, we need to start giving consideration about our openly unhedged international positions. This has somewhat softened the international share impacts on the way down and boosted your international returns over the years. However, with the Australian Dollar being circa 0.58 US cents, we need to think about currency hedging for the medium to long-term.
  5. Client Welfare – Whilst this is the last of the focus areas listed above, it is by far the most important. We recognise that for many of you this may be the first time that you have experienced falls in the markets. Furthermore, it may be that you are a seasoned veteran that has simply had a change in your circumstances, which is leading to questions or increased levels of worry. We want you to reach out to us, so that we can help you understand the economic impacts of this crisis and help put your mind at rest.

We have elected to migrate our face to face appointments to virtual meetings to protect you and your family, to limit the spread of the virus and ensure that we can help our Government and health professionals keep a lid on the ever-growing pressure that they are under. We have a lot of clients that are employed in the health and essential services sectors and on behalf of the Kuda Wealth community, we would like to thank you for your effort and service during this difficult time.

 

Microcap Monopoly Competition 2020

Please find an update on the Microcap monopoly competition. To recap, we randomly assigned a microcap equity to our clients and Facebook followers. The client and followers with the microcap company with the greatest market growth over the 2020 Calendar year will win a flight and accommodation voucher to the value of $2,500.

Congratulations to David P, who has bolted to the front of the pack with his TBG Diagnostics Limited banking a lazy 800% return since January 01st 2020.

1. David P (TDL) TBG Diagnostics Limited 800.00% Return

TBG Diagnostics Limited (TDL, formerly Progen Pharmaceuticals Limited) is a biotechnology company focused on the global molecular diagnostic industry and is involved in the development, manufacture and marketing of molecular diagnostic kits, instruments and services. With its research and development based in the US, Taiwan and China, TDL manufactures its products in its ISO13485 certified facilities in Xiamen, China serving the clinical labs of both hospitals and independent reference labs, blood centres and bone marrow registry labs around the world.

2. Sonya S (HT8) Harris Technologies GL Harris Technology Group Limited 122.22% Return

(HT8, formerly Shoply Limited) is an online shopping company. It currently owns a number of Online Shopping destinations. HT8 currently owns the following Online Shopping destinations: Your Home Depot, Harris Technology and Wow Baby.

3. Anne L (MHI) Merchant House Limited, Linda M (TSL) Titanium Sands Limited, Carolyn C (MDI) Middle Island Resources, Chris U (ACS) Access Resources N.L & Travis H (SKN) Skin Elements Limited all sharing in a 100.00% Return

Good luck to all other participants in the Microcap Monopoly. We will keep you updated as the results fluctuate over the course of the year.

In the meantime, please stay safe, find yourselves a good series on Netflix, Stan or Amazon Prime and settle in for some couch potato social distancing. I think I am better at doing this than most. Despite an occasionally overwhelming sense of guilt, a packet of chips, a couch and a good T.V series is part of my daily exercise routine. Who would have thought that this would become the recommended Government strategy for saving all humanity???

 

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