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  • Writer's pictureMarcus Bogdan

Market & Portfolio Update

It has been a watershed month for financial markets as coronavirus outbreaks have become more widespread. The disruption to global output and the reaction by policy makers have galvanised the attention of investors.

In Australia the ongoing impact of the coronavirus is resulting in further downgrades to FY20 ASX 200 profits, whereby even the modest expectations of 1-2% earnings growth is now looking unrealistically optimistic. 

With the prospect of an earnings contraction ahead for the ASX 200, earnings quality and balance sheet conservativism play an increasingly important role in portfolio composition.

In recent days central banks, including the Federal Reserve and the RBA, have announced emergency rate cuts to cushion the economic impact of the coronavirus. 

The contraction in China’s economic activity has been unprecedented as authorities measures to contain the coronavirus resulted in its national PMI falling to a record low of 35%.

Encouragingly signs of stabilisation of the virus in China are providing the backdrop to resume normalised economic and social activity. There is growing expectation that China’s resumption of industrial production could be back to normal levels by the end of March. 

Signs of value are emerging. The ASX 200 earnings yield at circa. 6% and a dividend yield of 4.5% is heralding long term value for investors. While the path forward remains uncertain, valuation metrics will ultimately normalise.

Blackmore Capital is starting to deploy capital into the consumer staples, healthcare and telecommunications sectors. 

It is noteworthy that Blackmore Capital’s equity portfolios have exhibited lower volatility and greater downside protection relative to the ASX 200 Index, a pattern that is consistent for each market downturn since the inception of the portfolios six years ago.

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