Investments amid the current progressive revival

The manager of alternative markets of Intelinvest, lawyer Juan Carlos Apitz, considers that it is necessary to give an answer from the economic and investment perspective to the question: what can we expect in the coming weeks when the economies reactivate?

Thus, the lawyer and adviser member of the management team of the stock house explains that, “the global pandemic continues to severely affect the lives of hundreds of thousands of inhabitants in the world, while most countries maintain quarantine or confinement with different nuances. A few weeks ago, the world was struggling between deepening social distancing to control contagion or progressively opening and attenuating, using minimal sanitary measures that could stabilize the economy. Now, with the S&P 500 recovering the returns of the previous months, it is opportune and prudent to ask ourselves from the economic and investment perspective, what can we expect in the coming weeks when the economies reactivate?”.

The fundamental characteristic of a context like the one we live in is an increasing uncertainty regarding what will happen in the coming months. Trying to guess the future is seldom what you do when you invest wisely. As Howard Marks has pointed out, no one has seen a circumstance similar to the one we are experiencing, and everything we try to control can end with a disastrous result, Apitz brings up.

In his conversation, he also explains that many investors relate the economic effect of COVID-19 to a shock similar to the 2008 global financial crisis, or even to the behavior of financial markets in the famous crash of 1929. However, it is worth noting that today we are experiencing a deleveraging process in the corporate sector, that is, the supply and demand shocks that we have experienced have forced companies to rethink their levels of indebtedness, as their income has been (and will be) seriously reduced. This contrasts with a deleveraging process very different from that of 2008, since that shock immediately impacted consumers, who had invested in financial instruments that the financial sector itself had offered.

“The S&P 500 has progressively recovered the returns reaped in the months leading up to the pandemic, a result that President Donald Trump was proud of and that has changed the perspective of the presidential elections in the United States. Even though the main economic indicators show a rather stormy climate, the world’s main central banks are focused on preventing financial markets from returning to the low levels we had in March. Hence, it is preferable to respect the famous postulate of “Don’t fight the Fed”. Although we cannot see this index as a reliable indicator of the economic situation in the United States (Russell 2000 seems to be the real proxy for the American economy), investors can focus their attention on the bond market and the stock market with differences, well marked”.

Juan Carlos Apitz estimates, and communicates this on behalf of the stock house, that the debt market will begin to show interesting returns with investment horizons of 1 to 2 years, but the stock climate seems to be very varied. In the case of the stock markets, investors should focus their attention on the shares of companies that were severely punished by the recent sell-off, but that their financial statements do not show a worrying leverage climate and the new digital economy scheme can significantly benefit your income. These companies, although they still do not give clear purchase signals, are already beginning to show truly attractive prices for large institutional investors.

To observe and confirm trends much more actively in financial markets, we need to know what we are looking for, says Apitz. By looking at the stock market, both the American and the European, we can identify three variables that can be very interesting: 1) digitization, 2) preparation (or adaptability) and 3) resilience. Given that the economy and its structure are undergoing substantial changes due to quarantine and the changes in the labor market, companies that manage to digitize or create digital commerce spaces will be able to stabilize and offer better results to their investors in the medium term.

“Then, managers have the immense challenge of demonstrating that the business plan can adapt to changing times and continue to offer the same value proposition, but with innovative mechanisms to strengthen brands and market position. Finally, companies that have been severely affected by the global pandemic are obliged to demonstrate a strong spirit of standing up; the companies (and even the nations) that are best able to respond to difficulties are likely to gain market confidence. There are already samples of these elements in the technology sector, with innovations of storage and work in the cloud and the digital security sector”.

This second phase in the middle of COVID-19 requires the construction of portfolios that go beyond traditional paradigms. For example, the typical “60/40” (60% shares, 40% bonds) of pension institutions and funds could seriously resent the performance or stagnation that we can see in the coming months. Under this climate of extreme uncertainty, with indicators that nothing guarantees a quick recovery, it is best to position yourself according to what your own observation is dictating. This leads us to understand that the recovery is not widespread, many assets will be able to show attractive benefits faster and our effort should focus on who is overcoming the pandemic and who is preparing to respond better to difficulties, concluded the manager of alternative markets at Intelinvest stock house.

M.Pino

Source: Conversation with the interviewed