Investing in the era of COVID-19

Investment experts weigh in on what the future could hold for share trading.

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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.

Who are our panellists?

Name Organisation Job Title
Boitumelo Mofikoe Pilanehurst Asset Managers Chief Investment Officer
Daniel Deming KKM Financial, LLC Managing Director
Nikola Gradojevic University of Guelph Professor of Finance
Jessica Amir Bell Direct Market Analyst
Sean Gossel University of Cape Town Graduate School of Business Associate Professor
Sebastien Galy Nordea AM Strategist
Keith Temperton Formerly at Tavira Securities Trader
Stephen Innes Axicopr Chief Global Market Strategist
Ipek Ozkardeskaya Swissquote Bank Senior Market Analyst
Jeffrey Halley OANDA Asia Pacific Pte Senior Market Analyst APAC
Dr Alexander Tziamalis Sheffield Hallam University Senior Lecturer in Economics
Sandip Sabharwal Asksandipsabharwal.com Owner
Joao Rafael Cunha University of St Andrews Lecturer (Assistant Professor)
Francis Marais Glacier by Sanlam Head of Research
Michael Gray Kiwi Investor Blog Senior Investment Professional
Roger Clayton Salt Funds Management Limited Chief Operating Officer
Mazhar Mohammad Chartviewindia.in Founder & Chief Market Strategist
Lulama Qongqo Mergence Investment Managers Investment Analyst
Simon Brown Just One Lap Founder
Neil George InvestorPlace Editor-in-Chief, Profitable Investing
Kyle Rodda IG Australia Market Analyst
Gary Dugan Purple Asset Management CEO
Nitin Dialdas Mandarin Capital Limited Chief Investment Officer
Nicholas Ferres Vantage Point Asset Management Chief Investment Officer
Steven Adang Anchor Pacific Investment Management Corp. Chief Investment Officer
James Gauthier Justwealth Chief Investment Officer
Sven Richter Geokalla Director
Chris Weston Pepperstone Head of Research
Lee A Smales University of Western Australia Professor of Finance
Richard Holden UNSW Business School Professor of Economics
Karl Schmedders IMD Lausanne Professor of Finance
Adrian Chia MACS Capital Sdn Bhd Director

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

Expert Tip
Daniel Deming Don’t get sucked into the common themes where debt is still an issue. Strong cash positions, means strong company fundamentals.
Nikola Gradojevic Diversify and be patient. Look for undervalued gems.
Jessica Amir Investors now have an incredible opportunity to set up a well-diversified portfolio across Aussie and international shares, listed property and fixed interest. And with shares and listed property trading at heavy discounts, there is a lot of growth on the table that will have a HUGE impact on investors’ futures in 3, 5 and 10 years.
Keith Temperton Do you own research. Plan your trades and trade your plans!
Ipek Ozkardeskaya Not to sell on temporary panic movements.
Jeffrey Halley Invest for the longer-term, not to “get rich quick”.
Sandip Sabharwal Be ready for huge volatility
Francis Marais Choose a combination of passive and active managers as opposed to trying to pick you own stocks.
Michael Gray Take a longer focus, be price-conscious, and the stronger are likely to get stronger.
Mazhar Mohammad For the next 12 months, in our opinion, one should look at stocks with a good amount of cash in their balance sheet accompanied with low debt. These type of businesses not only withstand the current crisis but should come back faster when the current crisis subsides
Lulama Qongqo The market can stay irrational longer than some companies can remain liquid. Try not to get caught in a speculative bubble by ensuring that you pay close attention to company fundamentals, especially balance sheets. Ask yourself if you would be comfortable owning a certain company/stock if the share price was not displayed every day.
Simon Brown Be careful, very careful
Neil George Do your credit analysis. Look at current ratios and cash burn rates. Then look at debts and the pending maturities as well as the status of creditors and bond investors. Companies need to be of good status now to make it through to better times post SARS-CoV-2.
Kyle Rodda Don’t chase the price. Know what you’re paying for.
Gary Dugan 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.
Nitin Dialdas Given the sharp rebound in the markets over the last couple of months, I would urge caution. At this point, it’s all about stock picking rather than going with the general market.
Nicholas Ferres Focus on the strongest balance sheets (least leverage) and strongest cash flow or companies. Some of the companies will be value traps and should be avoided.
Steven Adang Be patient. Dollar-cost average. Look to non-equities for better risk-reward. Active management will come back but you need to know how to pick the right ones otherwise you’re best left to indexing.
James Gauthier 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 minimize loss.
Sven Richter Look for quality and low debt.
Chris Weston 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.
Lee A Smales Be careful out there.
Karl Schmedders Despite their high valuations, Alibaba and Amazon will do well long term.

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.

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