It was a tough Monday for global stock markets. There was “blood” everywhere. Some are now calling it “St. Valentine’s Day.”
It started in Asia with the Japanese stock market dropping 13 percent of its value then extended the intense selloffs that followed the Bank of Japan’s rate hike last week – it’s now on record as the biggest one-day drop since 1987.
London followed by giving up 166 points or 2 percent. Same day US markets took a battering with the S&P 500 dropping 3 percent while the Dow Jones shed 1,000 points or 2.6 percent.
Surprisingly, the NSE 20 Share Index had a flat day, same as Nigeria but the JSE All Share Index fell around 2 percent. Bitcoin tumbled too – time deniers drop the “super-hedge” narrative once and for all, the asset has no negative correlation. Oil prices also slipped.
The risk sentiment is definitely off. How long will it persist? Time will tell.
For our interest, there are three scenarios available; one, do nothing. Two, follow the herd or three, build on previous (but solid) picks or selectively pick new (value) holdings.
Assuming we are working with the latter, we may need to understand the exact cause of the most recent market movements.
A bit too early to speculate but some are concerned that the US Federal Reserve may have made a mistake not cutting interest rates and might now be too late to hold off a recession. Key word is recession.
If the world’s biggest economy is feared to slip into recession, then there’s reason to be alarmed.
Others say the main reason for this fear is that US jobs data were much worse than expected – US employers created 114,000 jobs in July which was way below expectations of 175,000 new roles.
Then, there are those who care less what economists/analysts say and have been anticipating a shakedown by just looking inside the market (the market was getting top-heavy with just seven tech names accounting for almost a third of the S&P 500 index).
Be that as it may, for the internationally focused investor, if you’re convinced, we’re headed towards a recession, there will be opportunities in industries that can thrive during recessions.
You have the usual suspects; healthcare, real estate and consumer staples. Not forgetting the chief haven asset, Gold. Of course, no recession is the same.
One industry may have thrived during past recessions but could struggle immensely during another. Besides, to benefit, the platform one chooses will matter.
Are you invested via intermediated US focussed mutual funds? Separately managed accounts? Platform-based functional shares? Self-directed accounts, exchange traded funds (ETFs), etc?
For the local investor, a recession-hit US is always good for the tourism and export markets – flight to quality tends to float-up the dollar against the dhilling.
For those that believe this is a healthy pullback (after all, markets have rebounded somewhat since Monday), then this could be a fantastic opportunity to build on previously held high-conviction names. Perhaps, a good time to also selectively cut losses too.
