Market Update: COVID-19

Peter Forster
General Manager Wealth
3 MIN

The spread of COVID-19 has had a devastating impact on many families and communities around the world. The ongoing human tragedy is on all our minds, as governments across the globe respond to the crisis.

Over recent weeks, a sharp increase in cases around the world has led to falls in global share markets.

You may have looked at the performance of your investments and noticed that their value has gone down, and you may be wondering what you should do about it? The short answer is that you probably don’t need to do much. Investment decisions should be informed by your risk appetite and your investment timeframes. Day to day movements in financial markets should not necessarily influence the decisions you make about your investments.

Timeframes are important

The longer you plan to invest for, the more risk you can take. That potentially means higher returns over time, but a bumpier ride along the way. Of course, if you’re investing for a shorter period you should choose a fund that takes less risk – like an Income Fund or a Cash Fund.

Having a mix of investments reduces the impact of share market falls

All of our YouWealth and BNZ KiwiSaver Scheme funds (with the exception of the Cash Fund) have a mix of different types of investments. At BNZ we carefully consider this mix to balance the level of risk with the potential returns that we can deliver for our investors. In recent weeks, when global share markets have fallen, bond markets (in general) have actually gone up. This helps to smooth out the returns from your investments.

A more growth-orientated fund that has a larger proportion of shares will usually deliver a higher return over the long term than a more conservative fund that holds more bonds. But the flip side is that at times like these, growth orientated funds may see bigger ups and downs.

When markets fall you can buy the same investments, but at a cheaper price

You might be making regular contributions to your YouWealth or BNZ KiwiSaver Scheme account. This means that even when share markets fall, we will be continuing to buy more investments on your behalf. Because those shares are cheaper than they were before, your fund is able to buy more of them. So, if you’re able to take a longer-term perspective, this puts you in a better position to take advantage of any recovery in markets.

What’s next?

We expect this period of uncertainty (and increased ups and downs) to continue until there is confirmation that the spread of the virus has been contained. At this stage, it is impossible to say when that might be. However, looking at past virus outbreaks and natural disasters it suggests that the impact to global economic growth could be temporary, and that the recovery in economic activity could be quite fast once the virus has been contained. 

Seeing a lower balance in your investment accounts can be upsetting. We don’t like it either. But the ups and downs are part of everyday investing. While it can be hard to sit tight and do nothing, remember that the recent share market falls come on the back of a very strong 2019, when global shares were up by almost 30%. The key things are not overreacting and checking that you’re invested in the right fund for your long-term goals.

BNZ Investment Services Limited is the issuer and manager of the YouWealth Scheme and the BNZ KiwiSaver Scheme. Product disclosure statements for each scheme are available on bnz.co.nz or at any BNZ branch.

The information in this article is provided for general purposes only, and is a summary based on selective information which may not be complete for your purpose.  To the extent that any information or recommendations in this article constitute financial advice, they do not take into account your financial situation or goals and is not intended as personalised financial advice. While BNZ has made every effort to ensure that the information provided is accurate, you should not rely on this information to make any financial decision without first having sought advice specific to your circumstances from an authorised financial adviser. Neither BNZ nor any person involved in this article accepts any liability for any loss or damage whatsoever which may directly or indirectly result from any advice, opinion, information, representation or omission, whether negligent or otherwise, contained in this article.

Peter Forster
General Manager Wealth
Peter has nearly 20 years’ experience in financial services across Australia, New Zealand and Asia. He has led Bank of New Zealand's Wealth business since August 2018.