Clients see opportunity, not fear amid sea of red

The tone of the conversations clients are having with advisers amid significant market sell-downs in recent days have a flavour of opportunism rather than fear about them, Professional Planner is finding.

The so-called “V” shaped markets recovery media and commentators have been talking about, indicating a short and sharp sell off instead of a more prolonged “U” shaped market movement, seems to have resonated with individuals, advisers say. This calmness appears to be despite the uncertainties that lay ahead, from Coronavirus impact, to a lack of non-government-led catalysts for economic growth, oil-price wars and an unwinding of high valuations in risk assets.

“A few people I’ve been in contact with are saying it’s a good buying opportunity… I just got an email from one client in his late 60s who is asking whether he can bring non-concessional contributions forward to take advantage of the selloff,” said Michael Rees-Evans (pictured), an adviser and director at Sydney-based planning firm, EFS Strategic.

“[This client] has been around for a while, he’s seen dips before and he wants to be prepared to capture the opportunities,” added Rees-Evans, who runs a managed discretionary account which he says the majority of his clients are invested through.

Despite the 20 per cent drop in the local equities market in the last week, culminating in a close to 10 per cent fall during trading on Monday and a significant drop in the US share market on Monday night which led to the triggering of a circuit breaker, the ASX200 recovered during the day on Tuesday to finish in the black thanks to the promise of government stimulus, both in the US and in Australia.

But advisers looking to free up cash to enable clients to take opportunities should do so with caution, Sulieman Ravell, Co-owner and director at Neville Ward Advice, said.

“Selling investments that have fallen to free up cash to invest is a difficult conversation to have from an advice perspective because it’s such a fluid situation and you can end up doing to the opposite of what you want to do, buying at the top and selling at the bottom,” Ravell says.

Ravell reflects that this sell-off seems to be a different kind to that in November, 2018 where “everything” was being sold off.

“This sell-off is working its way through the market, from speculative equities to high yield bonds and hybrids,” he describes.

“It’s difficult to take advantage of the sell-down because you need to have those cash reserves,” Rees-Evans says. He adds that he’d look to possibly take money out of fixed income allocations to have the ability to allocate to where opportunities may be, such as in local Australian equities. Clients in moderate and conservative allocations could consider using cash to take advantage of the selloff, he believes.

The slump in oil markets caused by Saudi production increases was the catalyst for a shattering of market confidence after the weekend, Toby Lewis, director and founder of researcher Harbour Reach outlined in his daily note to advised clients on Tuesday.

The negative oil price shock makes energy sector defaults a real possibility with large parts of the US mid-west economy impacted as shale and other higher-cost production is forced to close, Lewis outlines.

Further, Coronavirus containment measures continue to be ramped up, with Italy placing the entire country under quarantine, restricting movement and cancelling public events, Lewis points out, noting the culmination of factors putting fear into markets.

The MDA structure has given clients see-through into the decisions made at the portfolio level, both Rees-Evans and Wayne Lear, senior wealth strategist at Financial Clarity in Sydney, believe.

Lear says he has been using an MDA for 12 years and his business makes changes almost daily which are communicated to clients.

“We run an MDA and as consequence our clients are fairly informed as to what’s going on and they can see what we’re doing with the portfolio on a daily basis,” Lear says.