Covid in Context

8 June 2020 By PDSNET

It is perhaps a good time to stand back from the hectic and extraordinary events that have accompanied the corona pandemic and try to put them into some sort of context from an investment perspective. It is steadily becoming more and more certain that the corona bear trend (if we can even call it that) has been short and sharp and completely unlike any previous bear trend in history. This is because it was not brought about by an accumulation of economic imbalances, but rather by an unexpected “black swan” event which is really unique in the history of markets.

On 13th May 2020 when the corona downward trend was nearing its height, we suggested in an article that it would be a “V-Bottom” and that it would recover rapidly from its low point. This prediction is now proving to be accurate. Consider the chart of the S&P500 index:

S&P500 Index January to June 2020

Here you can see the previous record high on the index at 3386 which occurred on 19th February 2020 – less than four months ago. The market fell steeply to its low at 2237 about a month later, on 23rd March 2020. From that point the S&P has been recovering rapidly and has now regained 83,2% of the 1149 points that it dropped. It is now just 5,7% below its all-time record high, and we confidently anticipate that it will break that high within the next few months and go to new record levels. When we look back at this time in the future, it will appear to be exactly what it is – an aberration characterised by a sharp fall and an equally sharp recovery.

In terms of the long-term scenario which we sketch out in “Our Background Approach” (which you can find under the heading “About” on the PDSnet web site), the impact of the pandemic can be seen as an aberration which does not significantly change the predictions and ideas sketched out there.

So, we see the massive bull market which began in March of 2009 as essentially uninterrupted by this pandemic from a market perspective. We see the world economy moving rapidly back to the period of strong growth and economic boom conditions that we have been expecting and predicting for so long. If anything, the boom will be that much stronger because of the massive monetary and fiscal stimulation which has been affected world-wide to compensate for the pandemic.

For this reason, we suggest, as we have always suggested, that the pandemic offered and still offers a buying opportunity for private investors which is rapidly disappearing. Already, banking shares, which we suggested a few weeks ago were heavily under-priced are moving back up towards more reasonable levels. They are still good value, but not as good as they were when we made the observation. That point applies to many high-quality shares. With the advantage of hindsight we will all see that the corona bear trend was a huge buying opportunity for those who had the awareness to grasp it.


DISCLAIMER

All information and data contained within the PDSnet Articles is for informational purposes only. PDSnet makes no representations as to the accuracy, completeness, suitability, or validity, of any information, and shall not be liable for any errors, omissions, or any losses, injuries, or damages arising from its display or use. Information in the PDSnet Articles are based on the author’s opinion and experience and should not be considered professional financial investment advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. Thoughts and opinions will also change from time to time as more information is accumulated. PDSnet reserves the right to delete any comment or opinion for any reason.



Share this article:

PDSNET ARTICLES

Mr Price

Mr Price is a well-known and focused retailer of clothing in South Africa. It is a quintessentially South African company, and its performance is a direct reflection of the state of the economy and the level of consumer spending. It is an extremely well-managed company in a very tough and competitive market. Clothing is sold by many dedicated outlets in South Africa and almost

Uncertainty = Risk = Volatility

We live in uncertain times. Among the sources of this uncertainty are the final outcome of the recent local elections (i.e. what the shape of our future government will take) and the prospect of the American elections on 5th November 2024. In the background are the wars in Ukraine and the Middle East which constantly threaten to escalate.

The uncertainty

Winning Shares List

Investment in the share market is not about certainties – it is about probabilities.

Success comes from bending the odds in your favour, so that it becomes like playing a roulette table where you have a 60% or 70% chance of winning.

That, of course, means that you must fully expect to lose 30% or

Wall Street and the Rand

As South Africa edges closer to election day, the ANC has been desperately doing everything in its power to pass populist measures to bolster its waning support, especially with the country’s lower income groups. This includes the signing of the highly controversial National Health Insurance (NHI) bill into law by President Ramaphosa.

There

Pan African Resources

In our opinion, the gold price in US dollars should continue to perform well for the rest of 2024 with the potential for rising inflation and increasing political instability in various parts of the world. The upward trend will, of course, be marked by corrections, but the overall direction of the trend is clear. Consider the chart:

Market Overview

This week, the US Federal Reserve Bank’s monetary policy committee (MPC) held interest rates unchanged at their historically high levels and said that they intended to hold rates at these high levels for longer than previously expected. This information was followed by the April 2024 non-farm job creation number which came in at 175 000 – considerably

Correction

The progress of the S&P500 index of the 500 largest companies on Wall Street is important because stock markets around the world, including the JSE, tend to follow it sooner or later.

On 19th January this year, something momentous happened when the S&P broke above its previous all-time record high

WeBuyCars

In a few days’ time, Transaction Capital (TCP) will unbundle and separately list its second-hand car sales company, WeBuyCars (WBC). The main benefit of this is to release the value of WBC into the hands of its shareholders. When the listing is complete, on 11th April 2024, WBC will have a total of 417,2m shares in issue which are expected to

Gold and Harmony

In our last Confidential Report, published on 6th March 2024, we drew your attention to the fact that the US dollar price of gold was about to break up through a critical resistance level at $2060. Gold has now moved up to $2166 so this observation provided an opportunity for private investors to make a significant capital gain, either in actual gold