Is the global economy on the brink of a recession? Several economists and policymakers have been voicing out their concerns regarding the same amidst escalating spread of coronavirus pandemic, and now the IMF Chief Kristalina Georgieva has given an indication of a global recession in 2020, with recovery projected in 2021. She expects recovery with the global community attaining success in suppressing the coronavirus and averting the liquidity challenges from turning into solvency concerns.
Travel three months back into the past and no one could have ever anticipated COVID-19 to have such a lasting impact on the global economy. The pandemic emerged as a huge blow to the financial and equity markets worldwide, with investors across the globe indulging in massive panic selling out of fear. It was certainly “UNIMAGINABLE” in the past.
However, it must not be forgotten “Every dark cloud has a silver lining”. And here, the bright spot is that you can now bag your favourite stocks at unmatched prices. In fact, this seems to be a golden opportunity to tap stocks in the world's most expensive share market- the New Zealand Stock Exchange, at never before seen valuations.
Given this backdrop, let’s make you familiar with some potentially attractive investment ideas that may help investors make informed choices amidst coronavirus crunch:
Follow a Disciplined Investing Plan
Investors generally believe that they can time the market and frame their investment philosophy around exit and entry from the stock market. Such investors usually end up making hasty decisions when market turbulence occurs, abandoning their investment strategy.
A renowned American Investor, Mr Peter Lynch has very well said,
At the time when it is almost impossible to predict the end of coronavirus pandemic, investors can follow a disciplined investing approach to prevent timing the market. Instead of engaging in massive sell-off, they can sit on the sidelines without worrying about the market dynamics or can add high-quality eggs in their portfolio nest for the long run.
Don’t Hit the Panic Button
Investors tend to miss the boat when they exit the investment mid-way in panic. Market corrections create huge panic among investors, who end up selling a substantial portion of their equity investments to evade risk. However, one need not forget that stock market corrections are typically periodic and subsequently results in strong recovery over time.
It’s very much likely that investors involved in panic selling can lose all potential long-term gains on their investment. Instead, investors can evaluate the situation vigorously in tandem with their investments and trade wisely.
Buy Investments that You Know
Though the market correction offers an opportunity to buy stocks at rock-bottom prices, panic buying is as bad as panic selling. A diligent fundamental research of the business before investing holds importance in a market correction phase too.
To make an informed choice, investors can understand a company’s competitive strengths, products, market, business model etc. before investing.
Avoid Red Flags
Another important factor to be taken into consideration while investing is avoiding red flags that can induce an investor to make poor investment decisions. This applies to both bullish as well as bearish markets. Though most of the stocks tend to fall in a bear market, the decline in some of the stocks can be an indicator of potential threat.
Before updating their stock portfolio in a bear market, investors can pay attention to red flags like unstable earnings, higher debt, downward revenue trend, unsteady cash flows etc. to dodge the risk of losing their hard-earned wealth.
Keep Fear and Greed Aside, Invest for the Long Haul
Selling out of fear and buying out of greed, both can land investors in trouble during market turbulence. Alternatively, investors can buy some good quality stocks at cheaper valuations to reap the benefits of potential returns over the long run.
Moreover, there is sufficient empirical evidence available to show that stock markets tend to recover in the long-term after bottoming out during the crisis. The NZX 50 Index is a classic example that revived substantially post the Global Financial Crisis, delivering a sizeable return of more than 330 per cent between Feb 2009 and Feb 2020.
Don’t forget what Mr. Warren Buffet opines-
Before concluding, let’s take a peek into some leading players (by market capitalisation) listed on the NZX, trading at a relatively undervalued price:
Investors may adopt a mix of fundamental and technical analysis approach to avoid making reckless and uninformed investment decision amidst coronavirus market correction. With numerous stocks trading at undervalued prices, careful stock picking depending on risk appetite and knowledge can help investors harness the benefits of long-term returns.