Finally, the US had decided to lockdown the whole country, so as most countries around the world due to COVID-19 pandemic.
At the time of writing, there are over two million COVID-19 cases reported and over 200,000 people lost their lives from this global outbreak. At the same time, over 16 million Americans have lost their jobs and more enterprises are expected to go bankrupt. To salvage the situation, the Federal Reserve took additional action on 9th April 2020 to provide up to $2.3 trillion in loans to support the economy. While the US death tolls have seemed to stabilise by mid-April, some countries seemed to get worse.
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In Malaysia, the Movement Control Order (MCO) enforced for a month has seen the spread more contained. On the flipside, the prolonged shutdown of business activities has caused dilemma to many Small and Medium Enterprises (SMEs), especially retailers. The world is moving into a recession that would be more severe than the Great Depression, and no doubt, we are facing a major health and financial crisis. Unlike any other financial crisis, people’s personal safety matters this time. Now, if you asked a CEO of a big or small company, he would tell you that it is very difficult to forecast their companies’ prospect. So what can we do?
What can investors do?
I guess the answer is ‘stay away’, unless you know the company very well. If the leader of the company doesn’t know what would happen, who else would know? Even if the company has strong fundamentals, it could change. A storm like COVID-19 has changed people’s lifestyle and the global economic landscape. This means some companies would no longer be serving the needs of their customers as before, and its prospects have changed.
Nevertheless, there are opportunities around in either good or bad times. I believe a company can survive and thrive if it possesses the traits below:
a) They are in the global business, which means they are doing export or serving clients from all over the world. It shows their competitiveness.
b) Their products and services are always wanted as they’re on the mega global trend, such as 5G, big data, automotive LED, aerospace, automation, home appliances, online payment, artificial intelligence, medical equipment and so on.
c) They have a strong balance sheet. For instance, Scicom, JHM, D&O, KGB, FPgroup, LCtitan, Penta, Frontken, Dufu, Zhulian. If they have good records in paying decent dividends, that is even better.
d) Some of them had survived through 2008 subprime crisis and are still growing afterwards. It shows their resilience and the ability to thrive after the turbulence.
Companies mentioned above are only examples. They would recover (or might not) at a different pace. It depends on their business model and the market they serve. If their customers were badly hit, you would expect longer recovery time.
So there is plenty of homework to do, such as study in-depth for the potential companies, read their quarterly and annual reports and attend their AGMs and ask the management questions.
Trading may be an option
Since the market and the business outlook is unclear, it would be better to go for short term (trading). The advantage of trading is that you only focus on the technical chart, rather than spending much time knowing the company thoroughly.
Since the market sentiment is much affected by the US stock market, it would be helpful to look at the S&P 500 charts.
The companies or strategies mentioned in this article are meant for study purpose only. It doesn’t constitute any ‘buy’ or ‘sell’ recommendation. Please consult your financial professional if you want to make any decision.
This is the S&P 500 technical chart as on 14th April 2020. You can see it has rebound strongly from 2200 three weeks ago to 2846 on 14th April 2020. So will the S&P continue to go up? Most people would say ‘no’, considering the bleak economy outlook. However, stock market is not the economy, it is the barometer of the economy, and it moves six to nine months ahead of the economy. For the market to be stable, the index will need to stand above the Moving Average 50, which is the pink line in this chart. Therefore, can the S&P 500 continue sustaining above the pink line? Only time will tell.
To deal with the unknown; let us make things simple – observe the chart and feel the market emotion. From there, we would make better trade knowing the market emotion is more favourable.