Hopes of Market Recovery and Finding a Safe Haven

  • Apr 11, 2020 NZST
  • Team Kalkine
Hopes of Market Recovery and Finding a Safe Haven

Many of us have similar thoughts running through our minds at this stage: the novel coronavirus, SARS-CoV-2, is hazardous and it’s spreading around the world at an alarming rate; it will have an adverse impact on the economy and individual businesses; a sharp decline in oil prices is adding to the uncertainties about global growth; there can be accidental consequences or second-order impacts that are not clear yet; the infectious disease has already kicked off a steep decline in the equity markets, and it will continue to affect it further, and so on.

And, finally, an investor concludes that it is wiser and safer to sell one’s existing equity investments to prevent any additional damage and go into the market at a later stage.

This strategy sounds perfect, but it has many challenges. Let’s have a look at them:

  • The market is already down, by more than 22% from its peak. So, if you book any losses, those would be your actual losses.
  • During a market fall, there are numerous misleading upsides and during a recovery, there are multiple false downsides - How will an investor find the actual upside or downside?
  • The market continues to juggle between favourable and unfavourable weekly returns, making it complex and emotionally demanding.

The market generally shows signs of recovery much before the actual fundamental changes happen. The critical thing to remember here is that as the market keeps reacting to unfavourable news, at a specific point, the market’s reaction to such news would be indifferent. In such a scenario, we don’t need things to change completely. A small change in perception might have a significant impact.

Now let’s look at some positive news.

One thing we all know is that, until the COVID-19 spread stops accelerating, the markets will not recover. Not in a stable way. The sudden uptick in equity markets in the last few days may not last. However, there is one metric that matters to comprehend the spread of coronavirus and market recovery. It’s the acceleration of the virus’ spread. The acceleration of spread is different from the velocity of spread. The velocity of spread is the new cases added each day and acceleration of spread is the change in velocity, which is the change in new cases added per day.

The simple rule is if the acceleration is negative, the market will start to recover.

Let’s look at the acceleration of new cases in New Zealand.

                                      

Source: Worldometer


In the above-provided table, the fourth column is crucial, which shows the new cases per day.  There has been a deceleration in the number of new cases from 6 April to 9 April before a reversal on 10 April 2020. This is likely to be one positive news that could help markets to recover. The recent recovery can be seen in the below chart:

(Source: Thomas Reuters)

Now let’s have a quick look at few stocks that can provide a safe haven among this market turmoil as they continue to remain operational and delivering decent performance.

Sanford Limited (NZX:SAN)

Sanford Limited falls under the country’s primary industry sector. The Company is categorized as an essential services provider and continues to be operational, as the country goes to Alert Level 4. Sanford is New Zealand’s largest and oldest seafood Company listed on the New Zealand stock market since 1924. As per the Fisheries Minister, Stuart Nash, the aquaculture earnings are expected to grow by more than 10% in the current financial year with the largest markets being the US, China, Europe and Australia.

Pacific Edge Limited (NZX:PEB)

Pacific Edge Limited will deliver vital cancer diagnostic services regularly during the shutdown in the US and New Zealand due to the COVID-19 pandemic. The Company’s diagnostic and medical services laboratories in both the US and New Zealand have been recognised as Essential Businesses and are working during the COVID-19 shutdowns.

Tilt Renewables Limited (NZX:TLT)

Tilt Renewables’ operational assets in both New Zealand, and Australia and deliver essential services and is thus not impacted by the restrictions due to the lockdown.

The Company highlighted on 25 March 2020 that its operations are running smoothly with a well-established infrastructure in place that has aided the employees to work remotely from home.

Freightways Limited (NZX:FRE)

Freightways Limited’s businesses are all classed either as essential services or suppliers to an essential service in New Zealand. This means that the Company’s networks are open for business for pharmaceutical and medical markets, and the movement of home delivery of groceries and perishable food items.

Gold Immune Against Coronavirus

Looking at the volatility in the market, gold can be considered a safe bet for investors. The demand for gold-backed ETFs rose in 2019 as investors wanted to diversify their portfolio and hedge against ambiguity in other markets. These inflows, besides with strong growth in futures positioning, witnessed the US dollar gold price achieve a six-year high. However, jewellery demand and retail investment declined, partly due to the sudden price rise in the second half of the year.

Bottomline

The financial stability of the economy has become an overbearing worry throughout the country. The current situation of the economic and job scenario seems baffling as businesses of companies are either shut down or are at minimal operational levels. However, the government of New Zealand Government appears to be a strong regulator and is fiscally stable to fight the economic impact of the COVID-19 on the country’s economy. As the extent of the outbreak continues to be a concern, a joint effort and positive nudge is what a nation might need to come out of the crisis healthier and more robust.

   
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