Coronavirus Impact: Share Market Update

Richard Hemming
Following up on email on Friday morning, where we suggested that subscribers could start placing a few small orders at what were some of the best prices of the last few years, we are following up with some suggestions for the next few days before Issue 387 on Thursday morning.
 
The Under the Radar Report Portfolio made only 2 of the 4 transactions we had proposed. Since we were transacting at Friday's closing price, we did not get the benefit of the much lower prices earlier in the day when we sent the email out. Subscribers please check your email to find out the small caps we bought.
 
As most will know, the US market soared in the final half-hour on the back of the White House press conference in the Rose Garden, which at the very least demonstrated how hard it is for people to effectively deliver the social distancing our leaders now require. One of the interesting features of the bounce on Friday is that, as we had anticipated, the bounce was led by the largest companies which were up well over 10% from their lows, and 4% on the day, while the ASX Smaller Companies index was up around 2%, and the ASX Emerging Companies index was down a further 2%. This pattern of quality first is likely to continue. If there is a further series of down days, investors are going to be looking for the most liquid and easily traded names to get them out of the market quickest, and we hope to be prepared for such events.
 
It seems clear that the news about the societal dislocations that the coronavirus is causing will likely get worse before it gets better.  It certainly seems that Australia and the US and other developed nations in Europe will need a period of two to three months of restricted economic activity before some elements of normalcy will return.  After this, it seems unlikely that the world will easily return to the pre-Corona days.
 
From a technical point of view, we are suspicious of the speed of the bounce in the US market and the Australian market on Friday. We would not be chasing these moves in the short-term.  Even if the outcome from here is as good as might be hoped, it will be a minimum of six months before the market works out what the real impact may have been.  At the same time, the stock market should anticipate a recovery, and will be very susceptible to good and bad news on the rate of change in the number of cases.  At its current rate, it’s estimated that  the uncontrolled spread of this virus increases the number of infections by 35% per day.  At that rate, the number of infections increases at 8000 per month, or 66m by the end of the second month, starting from 1 infected person!!  This is why governments are panicking!
 
WHAT DO YOU DO?
Right now, we suggest that subscribers sit on the minor gains that we may have made from well-timed purchases on Friday. We know your portfolio overall will be down considerably. Don’t panic and sell. With time on your side your portfolio will recover. Stay calm and ride out the storm. Let the market settle down a bit, and keep an eye on the news flow. We will be actively updating you.
 
For those holding cash, there will be more opportunities to buy quality stocks at discounted prices.
 
Our message on Friday to buy in small parcels remains the case. Timing is important and not chasing. Under the Radar will be communicating with you regularly.
 
The news on Sunday of the USFed’s rate cut to zero iss unlikely to engender a positive outlook.
 
UNDER THE RADAR SMALL CAP PORTFOLIO
From Under the Radar’s Small Cap Portfolio point of view, we retain our list of Best Stocks to Buy, with target prices, If there is a further downward move this week we will certainly look at fulfilling orders that were unfilled late on Friday. 

Subscribers: Please check your Monday email to find out the Small Caps we will be buying this week.
We will keep subscribers updated with any ASX shares we plan to buy.
 

About the Author

Richard Hemming

Investment analyst and Editor of Under the Radar Report

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