This article was first published on Linekdin
A lot has happened since my last article "How COVID-19 may affect the world economy and financial markets" was published. Most economists now think that the double punch of a pandemic and oil price shock will lead to a recession in most economies, at least in the first half of 2020, and financial markets have reacted strongly to this reassessment (scenario 1 in my previous article).
Strong stock price movements are not new to financial markets. They are inherently unpredictable and market participants have to live with them. They are painful in the short term, especially for speculators who are leveraged and/or lacking of cash.
Recessions, however, are nothing new. They happen regularly, and companies with solid balance sheets will get through them. For some of them, recessions offer unique opportunities for value creation, such as share buybacks and/or acquisitions at very low multiples.
Mr. Market is currently indiscriminately selling stocks, no matter how attractive their future prospects. The world economy, however, isn't 30-40% poorer than one month ago, and the lower the stock prices of companies, the higher their future returns. Situations like that are good for long-term investors, and we should take advantage of the opportunities that the world offers. And we should not forget that the current situation is not about markets, but about the people that are endangered by the pandemic.
Samuel S. Weber, M.A. HSG SIM
SW Kapitalpartner GmbH - Strategisch, Wertorientiert