Preparing for market recovery in the aftermath of COVID-19

June 22 21:48 2020

Many of our clients have been asking how they should be best-positioned to allocate their portfolios as global markets have continued to blossom over the past few months, in what is increasingly becoming known as the ‘post-COVID era’.

At this point, nobody can make assumptions about where the pandemic is headed and how soon it will end. We are barely six months into this pandemic, and uncertainties remain abound.

Meanwhile, financial markets have been trending higher in anticipation that the worst of the epidemic may be over. Most have recouped their lost ground for the year. The tech-weighted NASDAQ is up over 45 per cent since March this year.

This comes as the United States Federal Reserve added around US$3 trillion to its balance sheet, growing its assets to US$7 trillion. This huge injection of liquidity has pushed down the price/liquidity ratio of the US market to 0.14, below the average of 0.18. The previous ratio of 0.18 has been averaged over the past 30 years. This should be a major concern to US-based investors.

In Singapore, a 13-week market rally has lifted the Straits Times Index about 25 per cent.

But this is only half of the picture. Investors must take into account that much of this recovery is due to governments’ and central banks’ aggressive stimulus packages, which have been furnished on a hugely aggressive scale. Japanese stimulus injection is 10x more than what it was in the 2008 financial crisis and in the US, quantitative easing is in excess of 11% of GDP.

The reopening of businesses and economies is also fueling optimism and hope.

Funds that sold out of the market during the February-March sell-off have been rushing to get back into the equity market. It is the FOMO syndrome – fear of missing out.

While crosswinds of negative news on the COVID-19, macroeconomic and geopolitical fronts will inject huge doses of volatility into the market, some experts like Jason Peterson of CWP Investments believe its long-term uptrend remains intact.

“A recent survey found that 40 per cent said that they planned to reduce fresh investments in the light of the pandemic. Of course this is not ideal. Investing is not an option, but a necessity. We earn to sustain our lifestyles, but we must invest to build up our wealth. And with interest rates sliding to zero, the value of your bank deposits will dissolve against inflation.

“So it is important to invest if you want to grow your money. This will fund your life goals like marriage, buying a home, starting a family, planning for your children’s education or preparing for your retirement.

“Now is a good time to start looking at potential investment opportunities as markets have pulled back and new investment trends emerge in the post-Covid-19 world,” said Peterson.

So how is one to position for a potential recovery?

“Stay diversified, have a spread of growth, cyclical and value stocks and buy some bonds too,” said Peterson.

Many of our analysts are firm that the markets looks attractive. Stocks of companies with strong balance sheets, sound businesses, good management, proven strategies and which are leaders in their segments will be winners in the longer term.

There are many other beaten-down stocks of companies with strong balance sheets and good long-term growth prospects.

Stocks that seemed too expensive last year may look attractive. Many companies are leveraged on recovery and fit this category. If share prices are already running up, buy incrementally through dollar-cost averaging.

Beyond stocks, many investment advisers also recommend a diversification into other asset classes such as gold and bonds. Gold has become the go-to asset in times of uncertainty, and it has soared over the past year.

Remember, this market will go through severe episodes of further volatility. You must have the stomach and financial holding power to ride through the storm.

However, the world has been through many crises. This is just the latest. We will get out of this one too. But be positioned for the recovery.

For more information regarding any of our other services, please contact us on CWP Investments, Marina Bay Financial Centre Tower 1, 8 Marina Blvd, Singapore 018981. For more information, visit cwpinvestments.com, email us at [email protected] or call us on +65 3163 5214. Our press officer is Roland Werner and can be contacted at [email protected]

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