Market Reactions to COVID-19
How we can be most responsible and mindful with our moneyJessica Singer
The COVID-19 outbreak has caused major concerns about public health worldwide. While citizens are urged to self-isolate, many have felt stressed and anxious about how to best protect themselves and their loved ones.
At the same time, there are growing concerns about how the pandemic is affecting the economy. More than two million Canadians have filed for jobless benefits during the second half of March, as many businesses have shut down and workers are forced to self-isolate.
But the true financial impact of COVID-19 will depend on how long it takes for the pandemic to subside. This is difficult, if not yet impossible to predict. Yet, Kunal Sawhney, CEO at Kalkine, echoes the advice we’ve heard throughout the pandemic: we must stay calm, stay safe, and look out for our well-being.
Kalkine is an equity research and media firm headquartered in Sydney, Australia, and has recently spread out to serve clients in Canada, the U.K., and New Zealand. Kalkine’s main goal is to provide investment advice to clients that allows them to succeed in complex markets.
I recently spoke to Sawhney about how Canadians can be most responsible and mindful with their money, and the best investment options during these unprecedented times. Listen to our interview to hear more about Sawhney’s recommendations to investors and what people should do if they’re anxious about decreasing stock values.
Q: How is the average Canadian being affected by the current economic climate?
A: “The current economic climate scenario has been wreaking havoc on the lives of workers worldwide. We’re going to see a lot of people in Canada going for the jobless claims or looking for employment, and that’s going to be a huge challenge for Canada. Also, Canada is a resources-based economy with a huge mining industry, and we have seen that the price of oil has gone down tremendously – this in a way is reflective of a gloomy patch for certain industries,” explained Sawhney.
The retail industry and the food industry have taken a hit due to self-isolation measures, and Canada’s prosperous mining industry will also be affected by the pandemic due to the closure of mining operations and subsequent layoffs. However, Sawhney explains how online businesses such as Zoom, which help people learn and work from home, will evidently do tremendously in this environment. More importantly, consumer preferences are changing in view of the financial and economic shocks that are emanating from the current situation.
Q: Even when times are bad, such as during wartime, there are stocks that do well. With the current COVID-19 pandemic, are there any sectors of the economy or stock market that are safer investments than others?
A: “Yes, there are a few sectors to consider during this time. We look at Canadian banks that appear to be providing a very good investment opportunity right now. So, any of the blue-chip stocks which have taken a big hit would present a good value. Because if you look at the fundamentals of the businesses, they are very strong. So, it’s only a matter of time that these businesses will come out of the hibernation due to COVID-19 and you will see them get back on track. It might take three months, it might take six months, but over the long term we do see some of the blue-chip businesses whether it be the banking industry, or the technology industry, that you will see big wealth from [in the future],” explained Sawhney.
Sawhney also says that software and online businesses will do very well in this economic climate, as the ‘digital’ era is on the front foot right now.
Q: With the value of commodities and stocks being significantly lower, what would you recommend to investors?
A: Sawhney explains how a lot of sectors of the economy have taken a big hit; however, some dividend stocks and health care stocks would be very good investments. In our interview, Sawhney provides examples of dividend stocks listed on the TSX that would be safe to hold during a market crash, such as the Canadian Imperial Bank of Commerce or Fortis Inc.
Q: Do you believe that people are anxious because stock values are going down? If so, how should they alleviate their anxiety?
A: “Right now is a time of great stress, great anxiety, for people whose portfolios are down. But the key thing I would like to mention is that this would present a great opportunity. Some of the TSX listed stocks at large have fallen around 30% since late February...Right now we don’t have any time frame around when the businesses will be normalized. Yes, these are very uncertain times. But in saying that, there are still opportunities in this market. Even some well-known Canadian blue chips and heavyweights that have been around for a long time and seen troubling times need to be looked at – that’s where the opportunity is right now,” said Sawhney.
Q: Do you recommend individuals hold onto their current investments? Where do you stand on the long-term notion that many investors have of ‘buy and hold’?
Sawhney predicts that it will take around 12 months or more for businesses to return to normality. The first step is to wait until the pandemic subsides. Then, Sawhney suggests that people should hold onto their stocks and not sell in a pandemic-driven market.
While Sawhney also predicts that there will evidently be some sort of recession, there are still a lot of essential services companies that present huge opportunities and that can be bought along with other blue-chip companies.
For people whose portfolios have taken a hit during these times, Sawhney urges them to reassess holding onto the appropriate investments they have. “Panic driven selling is not going to be the best thing to do right now,” explained Sawhney. “The key thing to do is to be patient, be calm, and hold onto what you have, as in something that specifically fits well in terms of value.”