Stock markets around the world have appreciated by more than 20% in very few trading sessions and still in a period of expansion of the coronavirus. Because in fact what is being discounted in the valuation of the shares is that economic activity is returning to the main countries of the world. In this way, the selective index of the variable income of our country, the Ibex 35, has gone from the levels of 6.600 points to approach the barrier that it has at 8.000 points. In an upward race that has attracted the attention of a good part of the small and medium investors who in many cases have been left out of the positions in these financial assets.
But not a few financial analysts think that this scenario is unrealistic after the loss of turnover of companies that are listed on the equity markets. From this point of view, it cannot be ruled out that an adjustment in prices of a certain intensity may occur in the coming days. In this sense, it cannot be forgotten that sectors such as banking or tourism have maintained price increases of more than 30% or even more in some very specific proposals. To some extent irrational depending on the reality presented by these listed companies.
From this point of view, the best investment strategy that can be taken is to be much more selective than ever in configuring our portfolio from now on. In this general context, there is no doubt that small and medium investors may be falling into an excess of optimism. Given the clear warning from equity market analysts that the crisis will be worse than expected and that markets are focusing on stimulus measures from governments and central banks. In this sense, it can be said that financial markets are doped and the scenario may change as soon as the stimulus ends.
Latent dangers: fewer benefits
One of the problems facing the stock markets is that the profits of the listed companies have fallen due to the situation created by the expansion of the coronavirus around the world. A scenario that will at least be taken into account in the second and perhaps third quarter of the year. Where your business accounts will suffer from this important circumstance in the short term. With an immediate effect on the valuation of the shares of these companies. With cuts that can occur in the prices of many of the companies that are listed on the stock market compared to their current valuation. Being at the moment clearly overvalued, especially in some of the most relevant sectors in the equity markets.
On the other hand, it cannot be forgotten that this year will not be very positive for the economy these days and this is another of the factors that play against a rise in the stock market in the coming months. As well as the fact that sales will suffer in these periods and therefore the price of its shares will have to be adjusted in the coming months or at least weeks. In this sense, we must be very attentive to what may happen in the financial markets from now on in light of what may happen in the financial markets. Especially if there is a second wave in the expansion of the coronavirus and in which case this depreciating effect will be enhanced. This is an aspect that small and medium investors should pay close attention to.
Decline in economic growth
Another aspect that must be fixed from now on is the decline in economic growth in the countries with the greatest specific weight in the world. To the point that it could be the trigger for the stock price to go down in the next few days or weeks. With a foreseeable downward decline in those listed in this period and that can lead to losing a lot of money in open operations in the equity markets. From this point of view, it is preferable to be outside the financial markets so that in this way you can buy shares in companies with a more adjusted price than until now. With a more than possible depreciation in the investment portfolio in this part of the current year.
While on the other hand, no less important is the fact that from now on the effects of the coronavirus will be more visible in the accounts of listed companies. With a decrease in their billings and this will cause their price per share to be lower than estimated at this precise moment. Another consequence of this new scenario in international equity markets is that in the end the lack of growth affects the accounts of the listed companies themselves. To the point that it can be the benchmark to start a bearish race at least the short term, with a significant decline in the valuation of their prices in financial markets.
Price correction
Of course, it cannot be forgotten that all equity markets have been growing for many years. To the point of being immersed in the most notable bullish phase of the last 78 years and there is no doubt that this scenario must sooner or later end at some point or another. Not surprisingly, nothing goes up forever, much less in the equity markets. From this point of view, a correction in the prices of listed companies would be normal and even logical. Because in effect, it will be the way to adapt to the law of supply and demand within these financial assets. It cannot be forgotten that financial markets are overvalued even taking into account even the bearish pull as a consequence of the expansion of the coronavirus.
While on the other hand, we must also stress the relevant fact that price correction is one of the most common processes in equity markets. We should not worry excessively about this factor and on the contrary it can help us to buy the shares at a much tighter price than until now. So that in this way, we are in a position to have a greater potential for revaluation in the proposals of our securities portfolio. This is a very positive aspect for small and medium investors who are out of the buying positions and they give you the opportunity to take advantage of the real business opportunities that are generated from these moments. And therefore it is time to take advantage of it, if this scenario that we propose actually occurs.
Adjust investment portfolios
Another aspect that must be fixed from now on is that which has to do with the opportunity offered by the financial markets to change our investment portfolio. With a change that we can take with the financial assets that show the best trend at this precise moment. To address others that provide a better technical aspect and that provide better options to make the savings profitable from a change in investment strategy. It is a system that all investors should do from time to time to freshen their investment model and therefore improve it from the point of view of their profitability. As well as the fact that it will not give new opportunities to address other alternative financial assets that we did not have until now. It may be the moment to carry it out from an innovative approach and adapt to the current circumstances of the international economy.
Promote new investments
On the other hand, adjusting investment portfolios can help us from now on to promote new investments with greater guarantees of success than until now. From this point of view, it is a new task that small and medium investors now have to do. As a formula to improve the results of our investments and being present in financial markets of all kinds and nature. At the end of the day, it is an action that can be very positive for all users and that to a greater or lesser extent must be carried out with a rigorous analysis of the financial assets that they must choose to improve their investments, even with alternative models. with which we did not have at the moment.
We must also focus on another very relevant fact such as that derived from its purifying aspect. That is to say, to focus on the best financial assets of the moment and therefore optimize the available capital we have for this kind of operations in our relationships with the world of money. In this regard, it should be noted that the impact investor community is grappling with how the coronavirus crisis will affect growth and how entrepreneurs seeking capital in low-income countries will fare.
Safer investments
In recent weeks, several new coalitions and efforts have been launched to better collaborate. Some see an opportunity for the transformation of the financial industry and the integration of the effects, while others worry that money may flee in search of what some investors perceive as safer investments. The new fund seeks to expand impact investing through collective action. The Tipping Points Fund, launched by a group of foundations, aims to help build the field of impact investing. Here is how it will work and what you will focus on first.
The economic upheaval of the COVID-19 pandemic has led most investors to lose money, many to adopt a kind of retention pattern, and a large number to withdraw from investments in low-income countries. The United Nations Conference on Trade and Development predicts that foreign direct investment globally could decline between 30% and 40% from 2020-2021, and significant declines have already been observed in sub-Saharan Africa in several months. .
Accelerate the pace of investments
Yet many impact investors are still investing, experts and investors told Devex, trying to help the companies they work with scale up in response to the pandemic or looking ahead to see what investments can help the recovery. and to build resilience in the future.
The pandemic is a "test for the field of impact investing," Sean Hinton, CEO of the Soros Economic Development Fund, said in a statement. Amit Bouri, CEO of the Global Impact Investing Network, said impact investing is "more important than ever" and called on impact investors to "lean in the moment."
The funding environment for social entrepreneurs is not making things easy, but impact investors are looking to better collaborate to accelerate the pace of investments and streamline measurements and practices. Some even believe this could be a turning point for global financial systems, experts and investors told Devex.
"We cannot allow the impact not to be at the center of the recovery because how we approach the recovery phase will determine whether we are moving towards a new economic order with an impact at the center," said Sebastián Welisiejko, policy director at the Global Steering Group for Impact Investments.
Does the investment exist?
Economic shocks, market volatility and uncertainty often lead investors to take a more conservative stance, and while that has been true, some impact investors report that they continue to make new investments. While some investors have stopped doing new business amid uncertainty, impact investors are a bit more opportunistic, said Meredith Shields, the director of impact investing at the Sorenson Impact Foundation, and are still looking for ways to roll out. your capital despite the challenges.
The next two years are likely to return to pre-virus investment levels in Africa, with sectors recovering at different rates, and the tourism business in particular is likely to suffer for an extended period, Yemi Lalude said. , TPG Growth Managing Partner for Africa, at a recent online event. While investors are unlikely to rush into emerging markets when in a "risk-free" orientation, the fundamental drivers of investment opportunity in Africa have not changed, he noted.
Alternative markets
Investors working in low-income countries can also play a more prominent role, particularly in conducting due diligence. Alitheia Capital, which is based in Nigeria, has had converters ask the company to lead the due diligence activities, said Tokunboh Ishmael, Alitheia's co-founder and managing partner.
Alitheia Capital has always focused its investments on essential sectors such as healthcare, education, financial services and energy and is 'optimistic' to continue investing in those areas, which could well rebound after the crisis , He said. While some investors may continue to deploy capital, the way they do so is changing as they incorporate new risks. As a result, it will be more difficult for entrepreneurs to get large valuations, as investors will seek protections such as settlement preferences on those trades.
But companies shouldn't worry about their valuations and terms - if they can get cash now, they should, said Justin Stanford, co-founding general partner of 4Di Capital. Ishmael echoed that advice, adding that companies need to be more proactive in raising capital and figuring out how to make what they have last longer.
New impact on investments
Impact investors are joining in a series of collaborative efforts to better coordinate and accelerate the industry's response to the pandemic and, in some cases, committing to share pipeline information or due diligence processes in a way that have not done before.
The Global Impact Investing Network recently launched the Investment Coalition for Response, Recovery and Resilience to streamline impact investing efforts to address the social and economic consequences of the pandemic. . The coalition will connect investors and seek to highlight investment opportunities, help fill funding gaps and rapidly deploy capital.