Investing in the era of COVID-19
Investment experts weigh in on what the future could hold for share trading.
The brutal stock market crash in March and the unexpected rebound has left many of us wondering what’s in store for our shares and the equities market. Has the market recovered or is it just a dead-cat bounce? To investigate, we polled 32 experts from around the globe.
What's in this guide?
- Who are our panellists?
- Equities recovery or central bank bubble?
- Which major index could offer the best returns?
- COVID-19 investing opportunities
- Which investment styles will see the most success going forward?
- COVID-19-induced recession set to increase financial inequality
- Is it worth investing in travel?
- Tips for retail investors
- Tips from our experts
- What will the economic recovery look like?
Who are our panellists?
Equities recovery or central bank bubble?
The majority of panellists (59%) believe equities will recover to levels we saw in early 2020 this year while a further 25% say the market will recover in 2021.
Some panellists, including Daniel Deming, managing director of KKM Financial, were quick to flag NASDAQ’s spectacular recovery while this survey was in market. However, while he thinks we’re in for a recovery this year, he did note that other indices like the Dow and RUT are still lagging.
Many panellists forecasting a quick recovery, including Gary Duggan, CEO of Purple Asset Management, say the hunt for yield is supporting stock prices. “The very low yields available from government bonds, which are often below the local inflation rates, are almost forcing investors into the equity asset class,” he said.
Sven Richter, director at Geokalla, also believes we’ll see a recovery this year but that some markets will struggle. “The huge amount of liquidity being put into the system is pushing up equity prices in global markets, emerging markets have lagged and frontier markets are even further behind. But we could also see a downward leg after this as parts of the real economy may continue to be affected by COVID-19 for years,” he said.
The remaining 15.6% think recovery is going to take longer; 6% say it’ll be 2022 until equities recover, a further 6% think it’ll take as long as 2023 and 3% think it will be 2025–26 before we see things fully rebound.
Roger Clayton, chief operating officer at Salt Funds Management, doesn’t think we’ll see a recovery until 2023, with higher unemployment and lower corporate earnings weighing on the market.
Which major index could offer the best returns?
Retail investors who are looking to invest in the short term need to decide where they put their money. While some retail investors are happy to punt on individual stocks, many prefer to take a passive approach called index investing. So which index should they invest in?
According to the panel, NASDAQ will have the strongest performance over the next 10 years for an investment of US$100 (about £80) made on 1 July. Interestingly, Finder research also found that NASDAQ had the strongest returns of 9 indices after the 2008 market crash. However, it’s important to note that past performance does not equal future returns.
Nicholas Ferres, chief investment officer at Vantage Point Asset Management, is part of the 53% majority who thinks investors should look towards NASDAQ for their long-term investments.
“NASDAQ over the long term due to superior profits and as the index is a beneficiary of liquidity. However, we also favour MSCI EM or non-US equities on a relative basis. When the Fed last expanded the balance sheet by more than 100% EM equities rallied 170% in absolute terms and outperformed the US. In relative price and valuation terms, EM offers the greatest upside,” he said.
COVID-19 investing opportunities
Not everyone wants to take a passive approach towards investing. For those taking an active approach, their investment styles usually fall into one of two categories: growth or value investing. We asked our panellists whether they thought growth or value investors would perform better over the next 18 months.
Which investment styles will see the most success going forward?
Close to half (47%) of the panel said that growth investors would see the most success, while 38% said value investors would perform better and 16% said they were unsure.
Francis Marais is one panellist who said growth investors would perform better in current market conditions.
“Lower interest rates benefit growth investors, while good fundamental economic recoveries are needed for value stocks to outperform growth stocks,” Marais said.
However, just shy of two-fifths (38%) of the panel say value investors, not growth investors, will have a stronger performance. Boitumelo Mofikoe, chief investment officer at Pilanehurst Asset Managers, says value investors are more resilient. “Value investors would have favoured quality stocks that are mostly defensive and can weather the storm and emerge victorious post-COVID-19,” Mofikoe said.
COVID-19-induced recession set to increase financial inequality
Recessions like the Global Financial Crisis of 2007-09 and now the coronavirus crisis are often touted as once-in-a-decade or even once-in-a-lifetime events. And while the effects of incidents like these are overwhelmingly negative, it does present some with opportunities to buy cheap stocks. While this is great for those with means, others struggling to simply pay the bills may be left behind. 88% of panellists say the coronavirus-induced recession will increase financial inequality as those with means are able to buy assets at a discount.
Is it worth investing in travel?
The battered travel sector is one area investors may look to buy at a discount. With global border closures and mandatory quarantines, the travel industry has inevitably been put on hold amid the coronavirus pandemic. The changes have commentators speculating travel stocks, such as airlines, cruise lines and travel-booking businesses, are cheap and could offer big returns for those willing to buy in.
So are there travel bargains to be had? According to almost a third (31%) of the panel, yes.
Sabharwal suggested high-quality hotel and luggage stocks could be worth considering. Karl Schmedders, professor of finance at IMD Lausanne, also flagged the potential for some hotel chains to come up on top. He also says “a company such as Carnival may come roaring back.”
However, half the panel (50%) aren’t positive on travel stocks.
Simon Brown, founder of Just One Lap, thinks there’s too much uncertainty to bag a bargain.
“Travel is going to be hit very hard and we have no way of knowing what the industry will look like after the pandemic,” he says.
Tips for retail investors
In times of crisis, it’s hard to know which way is up and that is especially true of investing. What tips did our panel have for retail investors? Well, a lot of our panellists recommend being patient as well as careful and to make sure they diversify.
James Gauthier, chief investment officer at Justwealth, suggests that while market fluctuations could see some businesses go under, creating a portfolio that spreads your risk should help you weather the storm. “Diversify. The future is uncertain and the risks of bankruptcy or loss may be elevated so spreading the risk across companies and sectors can help minimise loss.”
Dugan says that people shouldn’t rush into anything right now. “Be patient and only buy on a weak phase in the market. Remember, there is a massive structural change underway. Investing with a bias to ESG factors is key.”
Weston thinks investors need to manage their expectations, especially those that have seen recent success.
“If you bought in March and made good money, especially if you got into travel stocks and unloved names, understand those runs happen once every decade or more. Become realistic on potential returns, create a framework to better manage portfolio risk, be prepared to cut out of companies that are not performing and use the capital elsewhere. Look at quality, that being, companies with excellent balance sheets, solid cash flow and a product or service which you feel holds a high probability of ever-greater demand.”
Tips from our experts
What will the economic recovery look like?
Given the equities market is influenced by macroeconomic trends, we asked our panellists when they thought the global economy will recover.
The panel dismissed the prospect of an immediate economic recovery, with just 3% forecasting a “V-shaped” return. However, the good news is that the majority of panellists are forecasting a recovery, with just 6% expecting to see an “L-shape”.
The panel thinks the global economic recovery is most likely to take the shape of either a W or a U (75%).
41% of panellists think we’re in store for a W-shaped recovery. When asked why, Sabharwal said there will be “an initial bounce then fall as stimulus impact wanes”.
More than a third of panellists (34%) say the recovery will be “U-shaped”, including Kyle Rodda, market analyst at IG Australia, who says the recovery will likely be slow and quite uneven. The remaining 16% say the recovery will take another shape.
The vast majority of panellists (88%) think a global economic recovery is either somewhat or totally dependent on the development of a COVID-19 vaccine; 16% say it’s totally dependent, while 72% say it’s somewhat dependent.
This article offers general information about investing and the stock market, but should not be construed as personal investment advice. It has been provided without consideration of your personal circumstances or objectives. It should not be interpreted as an inducement, invitation or recommendation relating to any of the products listed or referred to. The value of investments can fall as well as rise, and you may get back less than you invested. Past performance is no guarantee of future results. If you’re not sure which investments are right for you, please get professional advice. The author holds no positions in any share mentioned.