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Retail investors are piling into equities and margin loans to grab a bargain - while investment veterans warn of a COVID-19 bubble.
1. Market Feedback
Intelligence about the impact of COVID-19 on specific financial services sectors, not published by media.
Divergence: market behaviour vs professional investors’ expectation
One client points out that the MSCI World Index is “up 23% from the bottom as investors put their faith in unprecedented stimulus and the belief that the infection curve is flattening” but that neither of these things is “the cure-all risk assets are hoping for”.
Their views echo those of other professional investors - flattening the curve is just the beginning, the economic fallout will last well beyond the containment period itself, there’s too much optimism priced into recent market jumps, and we should be prepared for another or deeper low – perhaps down another 18 or more per cent, in line with the last low.
Professional investors who’ve lived through market routs say volatility will be “a sure friend in uncertain times”, to bastardise the Latin motto on AMP’s Circular Quay sculpture.
Broking and funds management – the (worrying?) retail rush
By stark contrast, and anecdotally, many private (retail) individuals are equity-bargain hunting, which concerns the professionals. Some retail investors started buying after the first market falls, and rue that decision, while others are looking now.
We’ve heard from fund managers about retail investors asking (for weeks) when they should “get in” to the market.
CommSec, Australia’s most popular retail stockbroker, is a good bellwether for retail investor appetite. They’ve had record margin loan (borrowing to invest in shares) applications for a couple of weeks now, including (as reported in calls with trading platform users) one year’s worth in three days.
The broker temporarily stopped taking margin loan applications on 24th March to get through the volume of applications and reported those restrictions to callers last week.
NAB and St George websites also refer to unprecedented call volumes and wait times.
The pile in from retail investors shows a big disparity in sentiment compared to what we’re hearing from chief economists inside fund managers (see below), and long-term investment professionals whose careers have spanned market cycles. There’s concern that we might later face a leverage bubble among retail investors.
Institutional client activity and views on a recovery
Overall, fund managers report higher levels of institutional client activity now, versus a few weeks ago, with one describing it as “clients coming out of hibernation” to investigate opportunities and ascertain liquidity positions.
Questions have been raised by market strategists about China: there’s evidence of strong rebound in activity, but where is the output going? Factories running at 80-90% of capacity have places to ship their goods while the developed world is still in lockdown. We might then see an inventory-build hangover.
Conversations about V- and U- shaped recoveries continue. They tend to land here: any sharp rebound will be short lived – perhaps a few weeks to a month (and staggered by country/region). The longer-range picture is more likely to be a U-shaped recovery – and a weak U at that.
2. Management responses
This section outlines how CEOs and their leadership teams are responding.
Potential permanent changes to working life?
Many clients are starting to look much further ahead, as far as two years, to how working life may change. We’re hearing more of you talk about reconsidering office footprints. Yes, some welcome a return to the office, but many are saying they will rethink how they can work online, collaborate and travel even when this situation resolves.
We still hear it’s taking longer to get business done. You're using new platforms and haven’t uncovered their full potential. At the same time, we’ve lost the corridor conversations and face to face meetings, and specifically the type of information exchanged in them.
Many of our virtual meetings are more stilted. That’s slowing down decision making and information sharing in some cases.
New technology could foster closer client relationships
Many clients have pivoted to virtual events, such as those who offer training that works virtually. Some stepped into “virtual” faster than others and are now see benefits. Others are asking how to make an asset of the new virtual environment, including bridging previous geographic barriers. Roadshows, for example, are now virtual due to travel restrictions – so there’s a focus (for those who have capacity) on exploring new options with virtual tools.
3. CEO guidance regarding coronavirus responses
This section provides our guidance on management and communication responses.
A. Dig deeper with your virtual tools
Virtual working, meeting and events are now our normal. There are some implications of this to respond to:
- As the medium becomes the message, what do these tools “say” about you, your people and your brand?
- Are you treating them as an extension of your brand, your people and your tone of voice? Or are they still a necessary and functional evil?
- What does the removal of some geographic barriers (other than time zone) mean for you and your stakeholders? One implication might be that the playing field has been flattened as competitors are also now present in this market, and we are in theirs.
B. If you’re not seeing creativity and energy return to your team, why not?
Many teams have been sprinting or long distance running to get BAU working, adapt or pivot. Some are simply worn out. Some are energised and looking for the next horizon of risk and opportunity. If your people didn’t get a break at Easter, or return from that break rested, why and what can you do about it?
- Do you need to roster days off or time outs?
- Are the new collaborative tools yet employed in ways that save, not suck, time? There may be productivity, timesaving and collaboration hacks you’re missing. What are they? Who’s going to find them and help your team transition fully?
- Are you looking at competitive advantages and risks in the new environment?
One sign that you and your people are well rested is that we’re lifting our gaze beyond “today”, “this week” In this space clients are finding potential pivots, new value they can deliver to their clients and stakeholders or ways to deepen the relationship. It might be as simply as switching from dial in meetings or phone calls (e.g. an analyst briefing) to face-to-face video meetings instead. Or it might be as complicated a launching into a new market or creating new product.
4. Appendix: How to help us help you
This briefing is collective intelligence gathered, anonymised and shared with you by my firm for the greater good. We’ve taken the view, based on client feedback, that the collective benefit to you all takes precedence over normal competitive pressures at a time like this.
This is an excerpt from one of our client COVID-19 CEO response briefings. For more COVID-19 response resources and guidance, visit our COVID-19 Response page.
If you’d like to discuss adjusting your communication strategy for the current times, please call us or fill out our contact form here.
