The aftermath of the Coronavirus pandemic – what to expect
Coronavirus has done a lot of damage to everyone around the globe. The quick spread of the virus created uncertainty which disrupted the way we live. Fear has taken hold of almost everyone. The aftermath of the Coronavirus pandemic is likely to leave people with weak economies and less confidence in the financial markets.
There is no certainty about what will happen as a result of the pandemic. We will discuss several events that are likely to happen in the aftermath of the Coronavirus pandemic.
What to expect in the aftermath of the Coronavirus pandemic
1) Investors who are buying “good and undervalued” investments at cheaper prices are going to gain more when the financial markets recover
The financial markets crashed as a result of Coronavirus thereby making many investments very cheap to buy. Some of these low prices are as a result of the panic of the investors and they have nothing to do with the true value of the investments.
If an investor identifies the investments which are unfairly punished and buy at a lower price, he/she will gain more in the aftermath of Coronavirus pandemic. These undervalued investments are likely to bounce back at a faster rate.
Industries with undervalued stocks may include:
- Mining,
- Agriculture,
- Information Technology etc.
2) Some companies that are heavily affected by Coronavirus may struggle to recover and some will not recover permanently.
The productivity of the heavily affected companies is going to fall making it difficult to meet their daily operations. Companies depending excessively on debt in relation to their equity (highly geared companies) are likely to default on their debt obligations.
As a result, investors who are buying and holding these type of stocks will lose more and may never recover their investments. Before buying these stocks, there is a need to research extensively.
Industries which are heavily affected by Coronavirus include:
- Travel,
- Hospitality,
- Tourism,
- Entertainment etc.
3) Many investors are going to be risk averse
It may take time until the risk investments gain momentum because many investors will take time to regain their trust in many of them. We are likely to see an increased demand for more secure investments like bonds and commodities.
In this case, bonds and commodity prices are likely to recover at a faster rate.
4) Investing in general is likely to drop
A decreased appetite for risk may lead to a decline in the number of people who will be investing their money. If this happens, many people will likely to retire with nothing thereby forcing pressure on government grants.
5) Unemployment is likely to increase
In the aftermath of Coronavirus pandemic there will be high rates of unemployment especially in industries that are heavily affected by the pandemic. Productivity will be low since the Coronavirus pandemic affects the supply chain and consumer expenditure will likely to drop due to low demand of goods and services.
As a result, to increase the odds of survival many companies will first aim to reduce the salary bill.
Governments and Central banks intervention
Governments and Central banks are likely to implement quantitative easing in order to stimulate the demand by injecting money directly into the financial system. In addition, this may involve reducing the interest rates so as to encourage borrowing.
Furthermore, quantitative easing is likely to give a temporary relief with possible long term disasters. A direct consequence of quantitative easing is an increase in debt – in most developed countries, debt is a ticking bomb waiting to explode.
If supply remains low, quantitative easing will likely to result in inflation. Inflation is as deadly as unemployment.
To avoid recession, the government can increase its expenditure. To fund this, taxes may increase which will make life difficult for income earners.
In conclusion, the aftermath of Coronavirus pandemic does not look good. Many investors are going to make mistakes that will cause them to lose enormous amounts of money. Some may be lured by cheaper stocks only to realize later that their portfolio is full of junk investments. There is a danger that Governments may implement desperate measures that are likely to throw the economy into recession or worse.
The author is an Investor and a Software Engineer who provides consulting services to several Financial Services companies. He has background in Actuarial Science (BSc) and Financial Engineering (BScHons; MSc).
What advise would you give to some who would want to invest in stocks in such times of a pandemic? Should they wait till the pandemic is over?
Not all cheaper stocks are good. Some of the heavily affected companies may never recover so you should avoid those completely no matter how cheap those stocks are. I am personally implementing the Average Down strategy on stocks that are showing signs of being undervalued. I am targeting stocks with a potential of a fast recovery after the pandemic (preferably those companies with low debt and previously survived other major crises).
Considering that the Coronavirus fear is not over yet, don’t use all your money to buy stocks at once because there is a higher chance that the price will drop further down. Therefore, you can use say 20% of your money to buy today and buy the remaining shares later when prices drop again. If you are really good on timing the market (this is not easily attainable though), its wiser to wait and buy later when the prices reach the bottom.