Stock markets around the world – including Malta – have been hit hard by the coronavirus. Investment firm manager Jesmar Halliday spoke to Vanessa Conneely about the crisis. 

Why have global stock markets crashed?

COVID-19 can be described as a black swan event for markets, as it was not predictable.

The reaction in January to the outbreak in China was seen as an Asian risk at the time.

As markets there re-opened following the Lunar New Year on February 3 they fell sharply in a day. In developed markets the reaction was initially muted as investors believed the virus would be contained in China.

In fact, markets in Europe kept steaming ahead. Then came the rapid rise in infected cases in Italy on February 22 and 23, which resulted in the Euro-stoxx 50 Index falling significantly by just over four per cent the following day.

Has Malta’s stock market been impacted?

Yes. On the news that Malta had its first COVID-19 case on March 7, the local equity market fell by 13.7 per cent over the course of eight trading days.

The companies hit hardest are in the tourism and cyclical industries, such as construction. When comparing the total market capitalisation for local companies listed on Malta’s stock exchange, €783 million has been wiped out.

This is not a permanent state and we will come out of it stronger

When it comes to corporate debt, there has been selling pressure on various issuers, as investors fly to safety given the periodic uncertainty. The short-term measures announced by the government to provide guarantees to businesses should hopefully provide a degree of relief for debt issuers.

How does this affect me?

The necessary draconian measures on border control, travel curtailment and keeping people indoors is similar to switching off the engine of a car and coming to a grinding halt.

The only difference is that when a car is switched off, the costs are limited as you are not incurring losses from fuel usage or wear and tear. However, with a business, fixed costs will keep piling up and not all can be postponed, including the wage bill. Simply put, this is a widespread chain reaction that affects all stakeholders in an economy and society.

Any idea when the situation might get better?

Medical experts are better positioned to determine a timeline or duration for this virus.

From what I gather, the best-case scenario is a year for a vaccine. The only solace we have is that this is not a permanent state and we will come out of it stronger. One thing is for certain, the moment markets get a sniff that an end date is near, a repricing of debt and equity valuations will be in order.

Markets will have greater visibility to the problem and this will recalibrate expectations depending on the developments. Investors should embrace history over hysteria in times of turmoil as it influences the decision-making process.

Good time to invest?

Clearly, there are pockets of opportunities given the fall in market values.

Long-sighted investors embrace periods of weakness to invest in strong business models that may be cheap during periods of market panic.

However, investors need to be mindful that their portfolio should complement their total net worth and life constraints which differ from one person to another. Despite uncertainty and the unknown, investing is a symbol of hope for what the future holds, and I tend to be a positive person despite the bombardment of negative news on COVID-19. The basic principles for investing remain the same: have a diversified portfolio with a mixture of asset classes that will perform differently in various market conditions in order to contain the overall portfolio risk.

This article was prepared with the help of Jesmar Halliday from Calamatta Cuschieri Investment Management Company. It is not intended to serve as advice on investment or buying of financial products.

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