Though the Monday market crash caused global investors to shiver, there is a silver lining to the current situation, says German equity analyst Folker Hellmeyer explaining the difference between the ongoing slump and the 2008 global financial crisis. He has also given some tips on how to manage one’s stocks in these turbulent times.

Markets have been fluctuating on both sides of the Atlantic since the Monday market crash amid the coronavirus outbreak, plummeting oil prices, and restrictions imposed by countries to stem the spread of COVID-19. Stocks again plunged on Thursday after the drastic slide on 9 March, however, on Friday the global sell-off eased a bit helping global stocks to pull back.

Tensions Cool in China

Folker Hellmeyer, the chief analyst at Solvecon Invest GmbH, highlights the coronavirus has had an “exogenous” effect on stock exchanges but that this has nothing in common with “endogenous crises”, which are caused by general flaws in financial structures or the economy. Therefore, there is a massive difference between the current market crash and the global financial crisis that shattered the world in 2008.

A man wears a protective mask as he walk past a panel displaying the Hang Seng Index during morning trading

The analyst expects that the tensions could ease up in the next seven days, and the markets would then react accordingly. For instance, in China, the CSI 300 and Shanghai Composite indices reached their maximum annual levels on 4 March.

Hold Your Stocks

Hellmeyer advises against selling stocks that have dividend yields of between 4% and 7% in accordance with a conservative investment model and judging from the available data and historical record of such virus outbreaks.

Interest rates have been reduced worldwide and that is the “discounting factor” for all other asset classes. Situations, like the present one, when investment prospects appear increasingly vague are rare. Therefore, according to Hellmeyer, one should hold on to shares and bide his/her time.

The economist also draws attention to mid-term measures and “catch-up” effects which could influence the global economy in the following months, in the second half of 2020 and also in 2021. He foresees that the situation will improve in the second half of the year at the latest and that it will be accompanied by low-interest rates which will encourage equity investments.

Attractive Time for New Investors

For the aforementioned reasons, the expert considers the current situation to be extremely attractive for investors who have medium-term investment planning. Russia is a good example, according to him.

Russian stocks have been sold off aggressively because of the oil price frictions with Saudi Arabia. The RTS index has dropped from over 1,600 to 1,100 points and the price-earnings ratio in Russia is in the range of five and the price-to-book value ratio is estimated at 70%. At the same time, dividend yields are at 9%. Under these circumstances the economist considers purchases to be “absolutely effective” for investors.

On the other hand, speculators will face certain difficulties: any news could move quotes either up or down by a couple hundred points.

Natural gas flares are seen at an oil pump site outside of Williston, North Dakota

There will also be certain changes, according to the economist. He foresees that a number of industries including tourism and passenger transportation – for example, Lufthansa – will “perform below average” for a period of time.

Due to the low prices for aviation kerosene, Lufthansa looks very attractive, but these sectors are the most affected by the outbreak of coronavirus. The analyst, therefore, sees greater potential in such areas as the means of production, industry, and other cyclical values.

 

Sourse: sputniknews.com

‘Exogenous Effect’: Useful Tips on How to Manage Your Stocks Amid Coronavirus Pandemic

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