COVID-19: An Investors Perspective

In the past week we have encountered an unprecedented phenomenon where governments, corporates, small businesses and individuals have been struggling to grasp the impact of the coronavirus (COVID-19) pandemic on a humanitarian level and how this will shift the global economy.

We have experienced before, in times of crises and disasters, short-term financial market volatility. In this case, that volatility is extreme and widespread. As we continue down this path of heightened uncertainty, knowing what to do with savings and retirement planning becomes increasingly difficult. When a market crash is as sudden and brutal as this one has been, it seems as if all our future planning doesn’t matter anymore.

I recall at age 18, in 1987, when the market was overheated (so everyone said), and then in October the crash happened. There was nowhere to hide and investors lost their fortunes. Stockbrokers who would ordinarily shout out orders and fight for trades would play games all day long to pass their time. Two years later, in 1989, the index rebounded 55%!

After the dawn of democracy from 1995 to 1998, not much good happened on the local markets as we feared the unknown, until in 1999 we gained a mammoth 61%.

As fear set in for the Y2K event in 1999 (for those who don’t remember, this is when all computers were expected to crash which would mean that the world would fall apart), the markets again didn’t budge and then we enjoyed seven awesome years where R100 invested in the index on 1 January 2001 would be R429 by the end of 2007.

Then the 2008 financial crisis. Fear again reigned supreme and we lost 23% that year. But sure enough it was followed by a recovery of 32% the following year.

For the past ten or so years, since the financial crisis, US stock markets have enjoyed a bull run that seemed would never run out of steam, running on fundamentals which would appear sound and even realistic. Unfortunately, we in South Africa have suffered through approximately five years of poor local returns.

Our biggest threat has been that when the US’s bubble bursts, we would suffer a double-dip. Of course, who would have guessed that the crash would be caused by a virus (a few, but not many did).

And now it has happened. Our meagre, but much appreciated ALSI return of 12% in 2019 has been wiped out mercilessly, and by close of market on 18 March 2020 it is already down 32% for the year. That’s our hard-earned 12% plus an extra 20% in just two and a half months!

History has taught us that fear causes panic and it is always the fear of uncharted territory which makes panic worse. Each period of uncertainty seems worse than the previous one, and during each period there seems to be no solution. Y2K, Dot-com bubble, Financial Crisis and now Coronavirus.

I can assure all that there will be a solution and that the markets will recover. The only question is when, and how much pain we will suffer in the interim. Be strong, be responsible and be patient… for your future.

Yours sincerely,

Glenn Gamsy

Managing Director - GIB Financial Services