End of March COVID-19 Update

I wanted to provide an additional update in relation to the COVID-19 pandemic and implications for both the domestic and global economies.

Increased restriction on movement and contact have been imposed in Australia over the last week. There are however some early signs that growth in new infections is slowing and if this persists it will be a very good sign which would indicate that the anticipated stress on the healthcare system will be less than was previously thought.

Infection rates in Europe and the US continue at high rates. After some indication that new infections were slowing in Europe they have resumed their climb. The US now has the highest number of infections globally and the rate is climbing. This most probably was as a result of a failure to instigate protective measures early enough.

In China there has been a relaxation of movement restrictions within Hubei Province, stranded residents are being allowed to return and residents of Beijing are being allowed to return but have to remain in isolation for 14 days. Now comes the critical question – will the infection numbers start to increase again. On this hangs the length of time that economic activity will remain at very suppressed levels.

If anything, the scientific language regarding the re-emergence of infection has softened slightly. From strong statements that the infection rate would return, views are now being couched in terms of it being unclear; a small shift in language. Last week we suggested that we would have an indication as to whether the infection would return from what was happening in China as it had at least partially restarted its economy. It is too early yet to make any definitive judgement. The infection numbers are still very low and reflect (infected) returning residents, however, the incubation period (about 14 days) has not yet been completed and the situation needs to be watched and the commentary from authoritative organisations monitored.

The situation in the US and Europe seems to be the worst and the furthest from resolution. There is great economic significance to this because of the size of these economies. It is not possible to make any meaningful estimate of length of time it will now take for these economies to bring the infection under control or economic cost of the failure to make early progress in containment. All that can be said is that it will be large; government debt levels will be very high and will need to be reduced post the end of the viral episode (hopefully one of the victims of the virus will be Modern Monetary Theory!) In a sense Australia may come out of this relatively well as government debt was initially low.

It is also too early to make too many predictions about how industries and economies will fare after the virus. What we would say is that financially strong companies and those well placed in their industry will be best placed to take advantage of new conditions. Every crisis brings opportunities and new ways of doing things, perhaps the lack of productivity growth that has plagued most developed economies for an extended period will get a boost (the reduction in Australia’s treacle like regulation would be a good start!).

Should you have any questions please do not hesitate to contact us on (02) 8256 3777, or individually as per below.

Hugh MacNally, Executive Chairman: 0414 728 638
Peter Reed, Portfolio Manager & Director: 0455 455 277
Jill May, Senior Client Relationship Manager: 0412 033 359
Samantha O’Connor, General Counsel & COO: 0419 992 664

Hope you are in good health.

Kind Regards,

Hugh MacNally
Executive Chairman,
Private Portfolio Managers Pty Ltd