At the time of writing, the World Health Organization has reported more than 3.76 million confirmed cases of the coronavirus disease (COVID-19), resulting in over 264,000 deaths worldwide. As governments around the world scramble to staunch the wounds in the global economy, investors have been left reeling in the face of a sustained multi-asset downturn.
To provide you with a more informed perspective on the investment ramifications of the COVID-19 crisis, we’ve explore some of the key factors and questions underpinning the broader Coronavirus investing discussion.
The Investment Impacts of the COVID-19 Pandemic
The COVID-19 pandemic, as you’ve no doubt heard, has not been kind to global asset markets. In addition to hamstringing manufacturing output and shuttering non-essential business-consumer activity, the COVID-19 pandemic has fundamentally disrupted the investing landscape, obstructing international supply chains, suppressing bullish investor sentiment, and plunging major equities indices into violent freefalls.
After hitting an all-time closing high of 17,621 points on 23 January 2020, Canada’s benchmark equities index, the S&P/TSX Composite Index, crashed to a low of 11,228 points by 23 March 2020. Despite surging volatility metrics and feeble investor sentiment, the S&P/TSX Composite Index has managed to cling onto a partial recovery and modest price upswing through April.
Unfortunately, bearish sentiment continues to dominate, with skyrocketing unemployment numbers and deteriorating levels of business activity poised to undermine any chances of a longer-term market rally.
A Snapshot from the Experts
From epidemiologists to economists, experts agree that the COVID-19 pandemic is an unprecedented event, both as a public health emergency and as a geo-economic crisis. One such expert is John Robertson (PhD), a medical biophysicist and the founder of Robertson Investment Services.
Pessimistic about the likelihood of a V-shaped recovery, Mr. Robertson is of the opinion that a debilitating recession is likely on the horizon. Interestingly, Mr. Robertson’s grim prognostication has not dissuaded him from remaining fully invested, telling Kyle Prevost from Million Dollar Journey: “Crazy, but as much as I’m pessimistic on the knock-on effects of this experiment in societal shut-down, I don’t have complete confidence in that guess. Forecasting is hard.”
“For example, mom and pop restaurants may have the worst year on record, but their bankruptcies may end up relieving the publicly traded chains of competition and letting them grow even more in the years to come,” he continued. “Or all the money printing might spike the price of stocks despite the underlying fundamentals.”
So, What Should You Be Doing with Your Investments?
Given the extraordinary economic circumstances, it’s difficult to even speculate on the long-term corollaries of the COVID-19 pandemic upon the international financial system and global investing environment.
Despite the uncertain economic landscape, the majority of investors are still investing, a decision that makes significantly more sense when you consider the abominably low interest rates on conventional savings accounts. If you’re one of these investors and want to keep putting money in the market, we’ve listed three tips for investing in the age of the coronavirus pandemic.
Panic buying or selling is a surefire way to lock in investment losses. If you need to unload risky positions or restructure portfolio holdings, make sure your decisions are underpinned by rigorous, evidence-based reasoning. If your existing holdings have fallen in value, avoid the impulse to make up your losses with risky speculative trading.
Alternatively, if you have experience as an active trader, pass up the volatile derivative products and make sure you’re keeping a closer eye than usual on news reports, earnings updates, and shareholder meetings.
Prepare for the Possibility of a Prolonged Market Contraction
The COVID-19 pandemic has pushed some of the most productive divisions of the global economy into technical recession. For instance, the European Commission has forecast a staggering 7.5 percent decline in the EU’s GDP. Meanwhile in the US, payroll company reports indicate that more than 20 million jobs were cut in April alone.
As an investor, there are several ways you can react to this bleak economic outlook. If you see cause to be optimistic about the chances of a V-shaped recovery, you might take the opportunity to aggressively expand your portfolio size, perhaps by targeting undervalued distressed equities in the tourism or hospitality industry. Alternatively, if you align with the experts and are more bearish about the long-term prospects of the global economy, you may choose to adopt a more defensive investing strategy.
Increase Your Exposure to Defensive Assets
Whether you’re an amateur or veteran investor, you’ll likely be familiar with the idea of tolerable margins of risk. During a protracted market downturn, there is a higher chance of asset classes exhibiting levels of volatility and risk that exceed your personal risk tolerance. To cushion your portfolio and shelter your capital, it’s good practice to increase your exposure to low-risk, recession-resistant industries, such as information technologies and healthcare services.
Another important capital preservation technique is to ensure that your portfolio is adequately diversified, not just within index equity markets but also across additional asset classes, like government bonds or precious metals.
Interesting related article: “What is an Investment?“