The economic effects of Covid-19 have been masked with Government stimulus, Central Bank liquidity injections, policy changes and debt forgiveness or deferral. We note the following:
- Directors obligations diminished: through temporary amendments to the Corporations Act with respect to continuous disclosure (which potentially weakens having an informed market); a six month holiday on laws around insolvent trading; ATO reportedly deferring payment notices to companies.
- Capital raisings hastened: ASX listing rules changed to increase size and speed of raisings.
- RBA liquidity: to cap rates in the bond market and provision of cheap funding to banks.
- Industry:direct support for the property and building industry.
- One off superannuation withdrawals: ~ $15bn.
- JobKeeper:~ 3.5 million workers and $70bn in wages support.
- JobSeeker:~ 1 million people with increased benefits.
- Loan deferrals: ~ $230bn of loan deferrals from both business and households.
- Rent deferrals: residential and commercial tenants.
The above have led to a stock market environment that is currently assuming no lasting effects of the Covid-19 pandemic and instead puts a lot of faith in the above measures to see us through. But many of these measures are slated to come to an end in the fourth quarter of 2020 where we believe the cash flow impacts will manifest for households and business. Despite the implication from rising share prices that all is well, we believe there are some companies that will face cash flow issues.
See attached for the full report.
During February 2022 the Fund returned 1.87% versus the S&P/ASX 300 Accumulation Index of 2.09%, underperforming the market by 0.21%. Over the past 12 months the Fund has returned 14.7%, outperforming its benchmark by 4.45% (after fees).