EQUITY MARKETS UPDATE – 15 May 2020 As we sit here today, the Australian and State governments have announced various easings of some restrictions as part of a measured start to reopen the economy. While this is a welcome move, it’s also one that must happen gradually in order to reduce the size of any second wave of infections. Shops are reopening, as are many other businesses, and there has been a lift in consumer confidence as the magnitude of government support has become clear, and as we approach a return towards a more normal life, albeit it will be a “new” normal for some period of time. The last month has been incredibly interesting as we have witnessed many of the 5 stages of grief as postulated by the Kübler-Ross model; that of denial, anger, bargaining, depression and acceptance. Certainly this lockdown has proven just how versatile and adaptable the human race is, with many businesses operating very effectively in isolation. Indeed, the Morgan Stanley CEO noted that they have “proven we can operate with effectively no footprint”. There are certainly long term consequences coming out of this period of time. The market through this period has continued to consolidate and move higher, and is now up 23% from its lows in March. However, this still leaves the market down just shy of 20% from the start of the year. We have seen a multitude of companies raise capital, to either shore up their balance sheets, or to give themselves ammunition should opportunities arise. Two of the most frequent questions we have seen in the press and research, is whether we have seen the bottom, and whether any economic recovery will be V shaped, L shaped, or even W shaped. Our sense is that while we might have seen the lows for this cycle, it is in part very dependent on the success of the “reopening” phases. And therefore at this stage, the answer to those questions is unknown. There is growing consensus amongst analysts that we probably have seen the bottom unless there is a large second wave of infections. However there will be earnings disappointments in the next few months, and further capital raisings. In a sense, at the moment, we are in the eye of the storm – that is, consumers have accepted isolation (and have started making multitudes of videos about it!), we see governments handing out enormous cash, we are all looking forward to the reopening stages, and we haven’t yet really seen the real impact of widespread unemployment take its toll on the economy – that will happen later this year, and that will have a profound impact on many parts of the economy. So while there is definite cause for optimism, as the lockdown stage is hopefully shorter than many were predicting, we need to remain aware that there are enormous pressures yet to bear on an economy and a government that now has a lot more debt than it did a few months ago. If you have any questions or wish to discuss further, please do not hesitate to contact us.