Frank Uhlenbruch. Investment Strategist in the Janus Henderson Australian Fixed Interest Team, compares the COVID-19 bear market with previous bear markets and suggests why this one could be shorter.

• When looking at different bear markets, they all have one thing in common – they end.
• Every bear market is different in terms of their speed and duration of falls, and how long they last.
• In a bear market panic selling of assets turns mark-to-market, or paper losses, into real losses.
• The nature of each bear market is determined by the initial shock that triggered them (demand or supply side) and the quality of the policy response (weak versus strong).
• The COVID-19 bear market was triggered by a supply side shock that quickly escalated into a profound demand side shock as health policies saw activity ‘stop’ during the lockdown phase of managing the rate of infection.
• The policy response to this biological shock has been swift, dynamic and comprehensive. Central banks are providing unbound liquidity and fiscal policy is helping economies ride through to when infection rates begin to fall or a vaccine is close.
• The nature of the COVID-19 biological shock helps explain the speed and depth of fall in the Australian share market compared to other bear markets.
• The vigorous policy response and finite nature of the event suggests that this bear market will have more of a ‘U’ shape and be shorter in duration than other bear markets.

Chart 1: All Ordinaries Accumulation Index (100 = cycle peak)

Source: Janus Henderson Investors, Bloomberg, All Ordinaries Accumulation Index (Quarterly Data): Various Bear Market cycles. Last observation for 2020 is 23 March 2020.