Family, friends and colleagues, separated by the lockdown, are often ending video chat sessions with the phrases, ‘Stay well!’ and ‘See you on the other side.’
We are all wondering how life will look when we do meet again, trying to assess the impact on relationships, businesses and the economy.
The stock market rally earlier in the week was largely in response to the gigantic US government package to aid the world’s biggest economy, but it also suggested some hardy investors are already hazarding a guess at the shares and sectors that could prove most resilient to the crisis.
Opportunity knocks: The stock market rally earlier in the week suggested some investors are already hazarding a guess at the shares and sectors that could prove most resilient to the crisis
More bargain hunters are forecast to emerge at the first definitive signs of a slowdown in the numbers affected by Covid-19. Yet there is no consensus as to which businesses will rebound most strongly.
Some experts say the crisis will not alter consumers’ tastes and even a small recovery in economic growth next year could represent a significant bounce back from the expected downturn.
Others, however, argue the experience of a drop in income or unemployment could make many individuals more cautious and unwilling to take on credit card debt, which would be bad news for many businesses.
This debate will continue. If you want to buy now – a pretty bold move in itself – there are two options.
You can bet on the resurgence of hard-hit shares and sectors. Or you can decide that a crisis of this magnitude will change behaviour, which means focusing on solid and sensible shares that cater for everyday needs – and a few small indulgences.
The basic rules for private investors are even more important at a time like this. Paying down debt and building up an emergency cash fund take precedence over buying shares.
Don’t risk money on the stock market that you might need in a hurry. People with the nerve for a gamble could place their faith in an adage from Joseph Campbell, an American academic, that ‘the cave that you fear to enter holds the treasure you seek’.
If you buy into that idea, you might look to buy shares in what Russ Mould of the AJ Bell platform describes as ‘the nastiest and most ramshackle businesses’ in this crisis. In other words, in the airline, hotel, pub and tourism sectors.
The deep plunge in the share price of Carnival, the cruise ship operator, is an example of the attrition in these sectors.
Pub companies, in particular, have heavy borrowings, but the Government could lean on the banks to show forbearance.
Chancellor Rishi Sunak intimated that airlines, rather than seeking a bailout, must look to lenders and shareholders for support.
But even if they survive, businesses in these categories will depend for their future prosperity on consumers returning to their normal habits.
British Airways owner IAG, Easyjet, Ryanair and Wizz Air could be boosted by a pent-up lust for travel. The airlines’ freight services, however, would make the most of a revival in the economy.
Mould argues that ‘the time to buy shares is when you least want to do so’. This does require nerves of steel, of course, and a long-term horizon.
On this basis, even the banks may be worth a look, despite the steep declines in their share prices resulting from interest rate cuts and forecasts of business failures.
Another consequence of the crisis might be a new spirit of thrift among individuals with cause to regret past addiction to credit cards.
This would affect the retail sector, including companies such as Asos, the online fashion firm which has a partnership with Klarna, the Swedish buy-nowpay-later lender. But there may be exceptions, such as JD Sports.
Richard Hunter, of the Interactive Investor platform, says the group has ‘net cash and large banking facilities, plus a strong balance sheet’, meaning it can pick up the slack from the closure of competitors.
And even in the toughest times – perhaps especially then – there will always be a call for PG Tips and other products from consumer goods giant Unilever.
There has also been a sharp fall in the share price of SSE, the utility company. SSE’s strength in renewables should stand it in good stead if the crisis invigorates the eco-consciousness movement.
Lee Wild of Interactive Investor suggests you look for ‘companies with strong brands and large market shares, with high long-term returns on capital, high profit margins, strong cashflow and little or no debt’.
If you still prefer to leave the task of picking the survivors to a professional, Yearsley suggests the following funds: JO Hambro UK Dynamic and Man GLG Undervalued Assets.
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