The spread of the COVID-19 virus has increased in Europe and the US and it is presumed in emerging countries, although no reliable data is available. Restrictions on movement have been made more stringent, a strategy that worked in east Asia where authorities moved quickly. In Europe and the US however the application of restrictions lagged markedly (in Australia the approach was slightly better, but not much). The implications of these lags are that it will take longer to bring the infection rate down. This will result in high levels of stress on the hospital system and in particular on ICUs.

The isolation strategy seems to be effective, providing it is applied stringently and enforced. More time is required if the adherence is low, as it has been initially in the west. As pointed out below the economic issues are somewhat less easily dealt with if suppression of infection only works while isolation is in place.

A study by Imperial College puts the view that the problem is that while isolation will bring the infection rate down, until a vaccine is developed the isolation strategy cannot be relaxed for any period of time without the infection rate increasing again. The veracity of this view is now going to be tested in China, where the economy is restarting. This obviously entails a relaxation of isolation restrictions and it should be apparent in the next week whether Imperial’s analysis is correct or not. One can monitor this via the WHO daily Situation Report which details the number of new infections by country.

The other question is what is going to be the economic effect. Clearly isolating populations has an enormous effect on the level of economic activity. The initial problem is liquidity, that is access to cash. In the last week Governments have taken unprecedented measures to counteract this initial problem, by providing funding to both businesses and individuals. The funding of businesses and individuals has been massive and the indications are that this funding is effectively open ended.

One should emphasise that these unprecedented actions do come at a cost, and the cost will directly relate to the time that they are required to be in place. It is thus extremely important that infection does not re-emerge when isolation is relaxed. The infection rates in China, Singapore and Korea (where suppression has already resulted in only minor new infection rates) will be monitoring very closely, as they will give us a guide to the future path of the virus and ultimately to economic activity.

While no vaccine can be expected in the short-term, work is going on at a feverish pace. The improvement of treatment methods and the identification of existing drugs, that have efficacy, would be important if they can shorten the time patients spend using hospital beds, particularly ICU capacity in short supply.

The market falls are now similar to those of the GFC, however, unlike the GFC they have taken three weeks rather than 18 months. It should be observed that companies went into this situation in far better financial state than they when into the GFC. This is of significance, but it may take some time for any benefit to be apparent.

We will update you as developments emerge.

Please be assured that our staff are well taken care of with the majority working remotely.

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

We are available to respond to your queries.

Take care and look after your health.

Kind regards

Hugh MacNally
Executive Chairman,
Private Portfolio Managers Pty Ltd