Current panic during the Covid-19 pandemic

It’s best to wait it out the volatility until a picture emerges and some stability returns to the markets.

During March 2020 the spread of Covid-19 has been a massive concern globally.

As we entered a national lockdown, we recognised that working in a home environment in many ways can be incredibly tough. We remain committed to delivering uninterrupted service excellence and we aim to communicate frequently to ensure we add value and keep clients updated during this pandemic.

We have over the last few days received many panicked emails and we wanted to share our response and opinion.

Global & Local answer and opinion:

The effects of coronavirus among other local and global macroeconomic factors continue to cause major market upsets across the globe causing global markets to react in a very unsettling manner. Leading economies are struggling to contain the spread of the virus and the number of cases in South Africa continues to increase. No country and no market has been spared from this carnage.

Most central banks across the world responded aggressively by injecting stimulus packages to avoid a possible global recession.

We foresee a continual market downturn caused by the widespread of the coronavirus in the near term until a possible vaccine is found, thereby negatively affecting your invested capital in the interim.

To deter continual loss of income from investments, we have proactively decided to take a more moderate/conservative approach. This investment strategy is aimed at increasing exposure to safe-haven asset classes such as local bonds and cash. We further decided to increase exposure in global bonds as we do feel that this sector will produce satisfactory returns going forward. Despite our conservative approach, we agreed to maintain some exposure to local equities. This is to ensure that, if markets retreat from the current meltdown, we do not miss on the upside.

On the offshore side, we have also decided to reduce the exposure to riskier assets and increase the exposure to bonds and cash.

At this stage, we advise to wait it out until a picture emerges and some stability returns to the markets. In our opinion investors who panic will make irrational decisions, which may potentially damage their financial future.

Frequently asked questions and answers:

Should I withdraw my investments?

Definitely not! If one withdraws investments at these times one would be realising an actual loss in value rather than merely seeing the paper loss on a statement! Covid-19 will change the world, of that there is no doubt, but markets will recover. Let’s remember that this crisis is a health/economic crisis not a financial crisis like 2008. Therefore, when markets begin to recover, they will recover very quickly. If you have withdrawn there is no way that you will make back the paper loss you may have suffered to this point.

What is the meaning of a conservative mix of funds?

This means your funds are invested in a less risky strategy which is not affected by the current plunging equity markets.

This is making sure you increase the exposure to cash and money market type of funds which during these stressful times have provided positive returns.

Why has the equity markets taken such a massive knock?

The Covid-19 pandemic is a black swan event which no one could foresee. This has thrown the globe into an economic slowdown; we call this the ripple effect. South Africa has always been exposed to any market shock that occurs globally. We at Global & Local can assure you that the markets will rectify itself once the virus is contained and when a possible vaccine is developed.

Do you see now with the markets being hit so badly a good investment opportunity to enter the markets?

For investors, we see now as the perfect opportunity to invest. Assets purchased now are much cheaper and, in our opinion, we expect strong gains on the investments you make now as global financial markets will eventually normalise. It may not seem like that now as there doesn’t appear to be light at the end of the tunnel when you are in the centre of a crisis, but like all previous market crashes things eventually do return to normal.

How long do you think the markets will continue to underperform?

We do not know how long this situation will persist for, and we should all expect continued market volatility over the coming weeks, or even months. We always encourage investors to have a long-term investment objective. A long-term investment strategy and staying patient at times like this have previously been very rewarding. During these times it’s important to remain focused and we will continue to take advantages of opportunities that may arise.

Would now be a good opportunity to invest offshore?

As mentioned before, no country or market has been spared from this outbreak. With this said there will be buying opportunities for investing offshore due to the market downturn and being able to enter the markets relatively cheap. The biggest concern we have is our exchange rate and the volatility we have recently experienced and it’s difficult to tell at this stage if it will recover. If you have the appetite to invest offshore, we do encourage it to ensure you have a diversified portfolio.

Please look after yourselves and your loved ones as we navigate through this unsettling period.

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Michael Haldane

Global & Local The Investment Experts


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