Monday, Sep 28

COVID-19 has the Potential to Change the Investment Landscape forever

COVID-19 has the Potential to Change the Investment Landscape forever

No one in their wildest dream perceived the year would turn out relatively nightmarish ‘overnight’. While some are still hoping to be nudged out of the bad dream, others are in ‘rehab’ trying to detoxify their system from COVID-19 news and updates. Yet still, others are nursing their nimble minds by maintaining some level of positivity and mental agility as economies are being sucked in the pandemic quicksand. For most countries, they are still being sheltered in their homes with restrictions still in effect as some governments and analysts are bantering over flattening the curve analysis and containment tactics.

As stock market values for big companies have dropped rather significantly, no one would ever perceive being involved in any kind of investments right now, and the few who might be considering the prospects are hedging their bets by taking cautious steps. For all intents and purposes, as to the bright scenarios of investing in anything right now, almost every sector has had a huge capital chunk bitten out of financial activities with productivity a mere mirage. Correspondingly, it might seem an unlikely phenomenon and highly improbable at large as some experts are of the view that preceding economic meltdown such as the financial crisis of 2008 and the great depression are still fresh in the minds of investors even though the relatively levelheaded and patient ones were able to cash in later when the economy improved. Investopedia corroborated the assertion by saying, “instead of acting rationally during severe bear markets many people tend to overreact and make matters worse. However, while many people panicked or were forced to sell assets at low prices, a small group of patient, methodical investors saw the stock market collapse as an opportunity.

“Investors of behavioral finance shows that people, rather than being merely risk-averse, are actually more loss-averse. This means that people feel the emotional pain of a loss much more than the pleasure gained from an equal-sized profit. Not only that, but loss-aversion describes peoples' tendency to sell winners too early and to hold on to losses for too long; when people are in the black, they act risk-averse, yet when they're in the red they become risk-seeking”.

Quite understandably, there is palpable anxiety and reasonably so amongst throngs of people who are burdened with what the future holds for them and their families. These fears have been legitimized by the International Labour Organization (ILO) which indicates that at the start of the year, 190 million workers were unemployed around the world and that the disruption to the world’s economies caused by the Covid-19 pandemic is expected to wipe out 6.7% of working hours globally in the second quarter of this year which is an equivalent of 195 million jobs worldwide, and that four fifths of workers globally live in countries affected by full or partial lockdown measures. The report also indicates that the four sectors which will be hardest hit globally includes accommodation and food services, manufacturing, retail and business services as well as administrative activities. Also, “workers in the informal sector who account for 61% of the global workforce risk job loss. It revealed that, two billion people have jobs in the informal economy, representing the most vulnerable workers in the labour market and will need income support just to survive and feed their families if their jobs disappear”. Albeit they did not explicitly project the exact number of workers who might be rendered jobless, it intimated that it’s likely to spike much higher than 25 million projected in the month of March.

With all cards clearly stacked against any investment odds as most individuals are resorting to “piggybank saving” and trying to save and frugally spend on a long rain pandemic day, companies are meticulously renegotiating at every turn in an effort to recoup what is left of their businesses, making any form of investment implausible now. Some stock markets analysts believe that the COVID-19 pandemic has the potential to change the investment landscape forever. In a euronews interview, the cofounder of Market Trader Academy, Amro Zakaria Abdu, said,

“It is going to accentuate the difference between the financial world and the economy, they should be linked, but they're not. I think it's also going to accentuate the difference between the rich and the poor, unfortunately, just because all this stimulus money is going to the capital markets and not everyone owns a capital like stocks and bonds”.

Despite recent commodity and financial markets decline which has sent some investors through the rotating door, she strongly advised private clients and financial institutions saying there’s more money to be made, even in time of volatile trade, citing the increase in demand for Zoom platform. “There’s a new category called a ‘stay-at-home stocks’. Things like Zoom, for example, has gone up by 106% since the beginning of the year. Microsoft, Amazon just hit a record high and Alibaba is the same thing.”

Investment opportunities in the pandemic

It might seem a long shot but there is always a precedent to problems and with solutions proffered not occurring in a vacuum space, analysts have reasons predicated on their assertions that investing in a time of crisis is actually the opportune moment to strike gold. Investopedia is of the view that, “while most investors are panicking as asset prices plummet, those with a cool head are able to see the resulting low prices as a buying opportunity. Buying assets from those restless individuals driven by fear is like buying them on sale. Often, fear drives asset prices well below their fundamental or intrinsic values, rewarding patient investors who allow prices to revert to their expected levels. Profiting from investing in a crisis requires discipline, patience, and, of course, enough wealth in liquid assets available to make opportunistic purchases”.

In such calamitous state, most people are driven to act rather irrationally by selling their stocks and bowing out, simply to cut back losses. But what they also fail to understand is that, like every other crisis, things will begin to look up and only the brave at heart can genuinely smile to the bank and not have a hindsight situation of “what-could-have-been”. “After the Japanese attack on Pearl Harbor, the S & P 500 index fell more than 4% and continued to drop another 14% over the next few months. After that, and through the end of the war in 1945, however, the stock market returned more than 25% per year on average. The same pattern can be observed after other geopolitical events. By recognizing the fact that markets tend to overreact, a smart investor can purchase stocks and other assets at bargain prices.

“Stock markets aren't the only way to invest in a crisis. The great recession also saw a collapse in home prices as the housing market bubble burst. People who could no longer afford their mortgages foreclosed and many homes were underwater, the mortgage amount owed to the bank exceeding the equity value of the property. Homebuyers and those investing in real estate were able to pick up valuable real assets at below normal prices, and as a result have been able to enjoy handsome returns as the housing market has stabilized and recovered. Similarly, so-called vulture investors have also been able to profit from taking over good companies that have been battered by a recession but have otherwise good fundamentals”.

Stocks aren’t the only go-to when it comes to places to invest and although a few eyebrows might be raised on the other places to invest, real estate is quite the ‘diamond in the rough’ especially in seasons of recessions. According to realwealthnetwork, “Recession, home values decline in certain markets, mortgage interest rates are usually low, and there’s steady rental demand but with very little competition from other investors/buyers.  Like gold and silver, real estate is a physical asset. And buying when the market dips to take advantage of low prices and interest rates can be a really smart investment during a recession. If you currently own one or more properties, they may have lost some value. But that doesn’t mean you won’t ever get that money back–like the stock market. Real estate markets and values will come back up as the economy recovers and it’s one of the best long-term investments, even during a recession”.

Corroborating the ideology of Investopedia, the Entrepreneur suggests that,

“though a major recession can bring serious losses to many industries, real estate— provided wise investments are made— is usually not among them. Recession usually leads to a drop in home values, meaning that you may be able to buy a property at a lower price and sell it for a large profit when prices rise back up after the economy and markets have recovered. In the meantime, you can rent the property out to a tenant, generating reliable passive income during the interim period”.

Recessions really separates the men from the boys as it tests them on the anvil of challenges and risky situations, and truth is recessions with this current pandemic included never really create a new normal especially for investors who have gone through the fire of such phenomenon. Drinking deep or not at all will remain merely a try-out for those who are still sitting on the fence while the strong at heart bells the recession “cat”.

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