Finding investment opportunities in a post Covid-19 worldHampton Wealth
Covid-19 has hit the world pretty hard. Where is the pandemic headed? How soon might it end? It seems that people have been dealing with this outbreak for hardly six months and yet, uncertainties still abound.
Financial markets have trended higher with hopes that the worst of the pandemic may be behind us. Over recent months, COVID-19 has affected industries either positively (as with sectors such as MedTech that experienced increased demand and growth) or negatively (as with the hospitality and entertainment sectors).
If you have an advisor, he or she may have filled you in on recent developments. However, if you have a personal (or company) account with an interactive investment platform online, you might be involved in navigating recent developments without an advisor.
There’s recently been an abrupt shift in expectations related to economic growth as efforts to contain COVID-19 curtailed global economic activity.
A potential market rally?
Much of the global stock-market rally thus far has been driven by aggressive stimulus packages pushed out to spur growth by central banks and governments. Japanese fiscal stimulus is 10 times what it was in the global financial crisis, and US government aid is 11% of gross domestic product. Positivity and hope are also underpinned by the reopening of businesses and economies.
Macro funds that sold out from the market during the sell-off in February-March were scrambling to get back into the equity market as the fear of missing out started to settle. While the Covid-19 crosswinds of negative headlines, macroeconomic and geopolitical fronts will lead to enormous amounts of volatility into the market, some experts believe a long-term uptrend remains intact.
Invest in high-quality companies
In a recession period, the worst-performing assets have always been highly leveraged, cyclical, and speculative. Firms that fall into these kinds of categories can be risky for investors due to the obvious possibility that they could go bankrupt.
Instead, investors who would like to survive and thrive during a recession could well invest in high-quality businesses with strong balance sheets, low debt, good cash flow, and industries that have historically been doing well in tough economic times. At the same time, investors who want to survive and thrive during a recession might invest in solid firms that have strong balance sheets, low debt, good cash flow, and are in industries that have a history of doing well during challenging economic times.
It would be wise for most investors to avoid highly leveraged companies which have huge debt burdens on their balance sheets. These firms often suffer from the burden of higher than usual interest payments which lead to an unsustainable debt-to-equity (DE) ratio. As these companies struggle to make their debt payments, they are often faced with a fall in revenue caused by the recession. For such companies, the likelihood of bankruptcy (or at least a precipitous fall in shareholder value) is greater than it is for those with lower debt loads.
Private equity in tourism-related sectors
Retail, hospitality, and travel are vast and vital sectors for most major economies and we are now seeing Covid-19’s detrimental impact on those industries in the figures recently released. With the lifting of lockdown measures, however, comes opportunities to enable these sectors and actively revitalize the economy, as well as increase the resilience of these sectors for years to come. Private equity can give businesses this lifeline to help see them through this time frame and across the other side of the lockdown, ready to grow and thrive. Those in the private equity arena now have a responsibility to support these companies in these challenging times and possibly see the rewards if the economy and its firms manage to recover from the pandemic.
Real estate safety measures
There’s an indication in the real estate sector that the pandemic has already sped up some trends substantially while other trends may be reversing. Demand for online shopping, for example, has increased and is likely to continue, while the ongoing trend towards work and living space densification is now under scrutiny. These trends differ across sectors and have diverse implications for the demand for real estate.
Nations across the globe have incorporated real estate policy changes in order to reduce the burden on tenants and, in some instances, landlords. Many decisions are being made at the state and local level in the US, and evictions have been temporarily banned by at least 34 states. At the same time, a 120-day moratorium on foreclosures from federally subsidized housing or from an estate with a federally backed mortgage loan was issued by the federal government.
Some landlords in parts of Asia have offered provisional rental rebates and discounts on rentals. Meanwhile, some countries, such as Singapore, are considering legislation that would safeguard commercial tenants who are unable to pay rent for a six month period due to the Covid-19 pandemic.
Hampton Wealth specialises in sourcing high quality, listed bonds and funds with a focus on providing returns in excess of normal off the shelf investment options.
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