Thursday 1 October, 2020

Your investment portfolio and COVID-19

By Daniel Thompson, Client Portfolios and Investment Strategies, JMMB Investments

With the official announcement of 12 confirmed cases of the novel coronavirus (COVID-19) in Jamaica, as at Monday, March 16, many persons are asking about the impact to their savings and investments and what opportunities may lie ahead.

The reality is that long before the virus reached our shores, the markets, in particular the equities market, in response to international news reports, were already experiencing increased volatility.

The question on everyone’s mind is, what should I be doing now to remain on track to achieve my financial goals?

JMMB believes that there are steps that investors can take, and opportunities that they can leverage, to achieve a winning outcome.

What is the reason for the current market activity?

Last year saw another bull run for the Jamaican stock market, with the main market index increasing by 31.39 per cent and the junior market index growing by 3.15 per cent, with trading volumes increasing by 171.55 per cent.

After a bullish run over the past five years, the local stock market began to show signs of losing steam in the second half of 2019. The decline in the local market, in the first two months of 2020, may be explained by investors liquidating existing holdings, to participate in the initial public offerings (IPOs) that took place in this quarter.

However, after the initial public offerings (IPOs), the market’s decline continued, as the Main Market Index has slid 13.1 per cent, since the start of March, 2020, while the Junior Market Index has declined by 18.1 per cent, over the same period.

These declines coincidentally occurred alongside the international spread of COVID-19. The US stock markets simultaneously experienced notable declines. Of course, in times of uncertainty, the tendency is for investors to react; and their reactions are usually reflected in the increased market volatility.

What do investors need to know?

  • No need to be overly concerned. The volatility currently being experienced in the market emphasizes the underlying investment principle that JMMB encourages, invest in value – take long-term positions in undervalued stocks, with a positive long-term investment horizon, and all investment decisions should be taken in the context of their long-term financial objectives. What has been observed is that the market has been falling on very small volumes, as a result of knee-jerk investor reactions, so the last thing an investor should do is to deviate from their overall portfolio objectives. JMMB continues to emphasize a balanced portfolio approach to investing, especially at a time like this.  It has been proven that a disciplined approach towards investing, outperforms one that is based on market timing.
  • Check your budget. Continue to constantly revisit your budget, to ensure that spending is in line with income (actual and projected).
  • Continue to maintain your emergency fund. This hasn’t changed. Always maintain an emergency fund that is equal to a minimum of 3-months’ worth of your expenses, in a money market or savings account, for easy access as the need arises.
  • Stay on track with frequent saving and investing. Stick to the agreed amount you need to save and invest, and put that amount in your saving and investment account, frequently. Stay focused on your goals. Staying focused will allow you to benefit from market downturns (for example, buying when assets are low in price).
  •  Keep a healthy credit score. Maintain your loan payments and contact your banker, if your situation changes.

Daniel Thompson, Client Portfolios and Investment Strategies, JMMB Investments

Investing with a short-term horizon, with the aim of “timing the stock market” (speculating), is a very high-risk venture that can lead to significant losses. It is notable that news of COVID-19 in our region struck during the JSE’s earnings season, when companies publish their financial reports, coinciding with the publication of positive financial results for several companies, which have since seen their stock prices depreciate significantly.  A declining market may present an opportunity to acquire fundamentally solid stocks at reduces price, this, however, should be done within the context of your overall portfolio objective.

While it is difficult to predict the full impact that COVID-19 will have on the market, JMMB urges everyone to remain focused on their financial plan and goals. Therefore, persons should continue to hold a balanced portfolio; as this is a basic tenet of sound portfolio management and is crucial in times like these, to get the outcome that is being sought.

Recall that there has been market downturns in the past, and we are likely to see them again in the future. They are a part of the regular cycle. The key is to stick to the long-term objectives of the portfolio, and always remember why the investment was made in the first place.

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