The best current market conditions for long-term investors

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The best current market conditions for long-term investors


summary

  • The global impact of the coronavirus threat, especially the sudden shock to economies, has been unprecedented in recent history.
  • The severe impact and prolonged period of the pandemic paint a grim picture.
  • With various policies taken to ensure a rapid rebound in economies and markets, we are likely to see a positive recovery despite the emergence of new waves of scourge.

The global impact of the coronavirus threat, especially the sudden shock to economies, has been unprecedented in recent history.

The severe impact and prolonged period of the pandemic paint a grim picture. With various policies taken to ensure a rapid rebound in economies and markets, we are likely to see a positive recovery despite the emergence of new waves of scourge.

Major global markets have recovered their performance since the start of the year, as they did at the end of last year, with the S&P 500 gaining at least 10% and 6% for the MSCI World Index.

These were major gains as the S&P 500 Index fell 20% in the first quarter of 2020, from 3,230.78 to 2,584.59 points. The MSCI World Index also fell 21.4 percent, from 2,358.47 to 1,852.73 points over the same period.

Locally, the benchmark NSE-20 and NASI also fell 25.9% and 20.7% respectively in the first quarter of 2020. In the first quarter of 2021, the NSE 20 equity index closed the quarter lower at 1846 , 41 points, a decrease of 1.2% compared to the figure for the previous quarter of 1,868.39 points.

The All-share index closed the period at 158.62 points, an increase of 4.3% from the 152.11 point figure in the previous quarter, thanks to the gains recorded by large-cap stocks such as BAT Kenya: SCOM and Cooperative Bank #ticker: COOP. The gains, however, were weighed down by losses recorded by stocks such as Diamond Trust Bank #ticker: DTK, ABSA Bank #ticker: ABSA and NCBA Group #ticker: NCBA.

Several policy measures have been taken by governments to mitigate the economic impact of the pandemic, including quantitative easing measures such as interest rate cuts. Banks have also restructured customer loans to ease liquidity pressure on individuals and businesses.

The deployment of Covid-19 vaccines has sparked a rally in global stock markets on the back of optimism that the economic damage from the coronavirus could be limited if populations are largely protected. In addition, positive news about vaccines is likely to trigger a reallocation of funds from safe investments such as fixed income and gold to equities, with investors currently viewing low valuations as a signal to enter the market. market.

Digitization is key to building resilience to the pandemic, supporting payment systems, and helping businesses interact with customers with health guidelines limiting in-person interactions.

The adoption of technology-driven initiatives has bridged the digital divide, even in financial markets. This has been seen in particular with the integration of ICT and the financial sector in the development of innovative ways to improve ease of operations and communication, thus providing investors with access to services at their fingertips, thus facilitating movement. physical or interactions.

For example, Old Mutual Securities has an elaborate online equity trading platform that allows clients to trade personally and even access valuable market research.

In addition, the Nairobi Stock Exchange has taken steps to ensure a transparent flow of transactions by investing in a new state-of-the-art brokerage connectivity solution to ensure a stable network infrastructure is in place. , secure and resilient for securities trading.

With the wider rollout of the vaccine still underway, market sentiment should improve and expect funds to flow into the equity market.

As countries continue to contain the pandemic, financial markets are starting to gain a foothold, and sectors such as telecommunications and banking are more likely to rebound faster after the pandemic.

We believe that local investors should consider the market opportunities currently available and take positions with ease, as digitization has made trading in the market possible.

A recent IMF economic report points to a positive economic recovery signaling a movement of capital to the local market from foreign markets by investors, thereby resuming activity.

Mburu is a research analyst at Old Mutual Securities

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