THE BOUNCE BACK FACTOR: As the world's economy reopens… what's next for investors?

THE BOUNCE BACK FACTOR: As the world's economy reopens… what's next for investors?


Wednesday, July 08, 2020

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THE COVID-19 pandemic has disrupted the world over the last several months but the situation, though slowly, is taking a turn for the better as economies worldwide reopen. What next is in store for investors?

This year has seen the economies of countries worldwide squeezed as they try to balance and reduce the negative impact of both COVID-19 and the economic downturns. However, many nations are now reopening their economies on a phased basis.

Locally, borders have reopened and tourists, who are trickling in, are adjusting to the Government's new measures. Most persons are back to work operating in the new normal of face masks, temperature checks, and hand sanitisers.

More than ever, most governments globally have faced the need to balance people's health while balancing the economy. Bloomberg recently reported that China is speeding up endeavours to boost stock trading and open its capital markets.

The Chinese Government aims to funnel more funds toward privately owned enterprises to minimise the coronavirus pandemic's impact on its economy.

This economic push globally bodes well for investors who have also felt the negative impact of the pandemic. But, like the comeback kid, the projections are that the market will bounce back. After all, it's not the first time a crisis has hit the stock markets — and it won't be the last.

However, despite knowing this, we often let our fears take over and may react by selling quickly. It's important to remember that investing is not a get rich quick scheme but a tried and true longevity method involving patience and stick-to-it-iveness

Cash is king — especially in a crisis — and the trend globally remains the haven of the almighty US dollar, still considered the ideal internationally.

The Jamaican dollar started 2020 at JMD$132.57:US$1 and hit a high of JMD$147.39:US$1 in May. It has been experiencing fluctuations and depreciation (JMD$140.01:US$1 as at June 30, 2020 — a 5.61% depreciation YTD), which can impact the value of investments.

Additionally, investors in a global market economy can expect to be among the first to benefit from the economic recovery, which will likely be led by developed countries. Countries like Jamaica are likely to lag in their recovery regarding discretionary consumer spending in the US, UK and China. Investors would be well advised to increase their exposure to the developed countries in order to be the first to experience the benefit of a global economic recovery.

According to Eugene Stanley, vice-president, fixed income and foreign exchange at Sterling Asset Management: “The expected shape of the recession could have meaningful implications for a bond investor's decision to invest. If the investor believes the outcome is likely to be V-shaped, they may need to act expeditiously to capitalise on existing deals while they still last. If a U-shaped [outcome] is expected it implies that bargains should remain on offer for some time and therefore affords the investor more time to take advantage of them. At the same time, evidence of an L-shaped recovery suggests that many bond yields could remain elevated for a considerable time as corporations struggle/grapple with a prolonged period of below-normal economic activity.”

For investors ready to reap in these opportune times, Eugene Stanley shares three steps to take now:

1 - Get a clear understanding of the risk profile of the investments you own.

2 - Re-assess your risk profile — get clear on the percentage of your portfolio that should be in “growth/higher-risk” investments and the percentage of your portfolio that should be in “income/moderate-risk” investments.

3 - Survey the market: understand what returns accompany each risk level.

To grow one's portfolio despite COVID-19's impact, Stanley advises to reinvest any income, gains, or dividends earned from investments and resist trying to 'time' the market. “Shrewd investors should reposition while making use of sound advice from their investment brokers, [in order] to reap the best of upcoming opportunities,” Stanley said.

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