What a sale!!!
The coronavirus phenomenon have been with us for the past couple of months but its severity and impact was only fully felt by the financial markets this past week with the indices in Europe and North America taking the biggest hits from the recent sell off. The Dow Jones index which composes of 30 large US companies and often seen as a barometer for the US economy fell by over 11%. The news was not rosy on the other side of the Atlantic either as the both FTSE all share index(UK) and Stoxx 600 index( Continental Europe) falling by over 12%. Many of the companies within these indexes have exposure to the travel and leisure industries which have been hit with less passenger movements across countries and hence the short to medium term prospects for these companies becoming unfavourable. The wider world economy also face the prospect of slower growth and possible recessions in many parts of the world according to the IMF.
Four months performance of the Dow
Source: Macro Trends
One month performance of the FTSE All Share Index
Source: London Stock Exchange
However amongst all these noise and fears there are many gems to be found for long term investors looking for value when buying companies. While it is true that there will be a disruption in earnings of many businesses, let us not forget the market always tends to over discount stocks in times of panic and the likelihood of these firm’s growth and future prospects look very bright as our lives are intertwined with them and we use them on a regular basis. The legendary investor Peter Lynch would say this is the perfect time to buy growth at reasonable price with many companies with aggressive growth selling at below their growth rate(PEG below 1) with a number of high quality companies with strong balance sheets and high free cash flow are on offer at a bargain prices in both the US and European markets.
Amid the numerous bargains available a few companies such as Netflix and JD.com have seen their share price accelerate further as they have benefited and will continue to benefit from people staying in their homes and using their services and it shows the interesting contrast between businesses during events such as the coronavirus. In closing I believe the virus and its effects may cause uncertainty in the world over the next few months but a complete standstill of the world order seems highly unlikely and I feel confident in a recovery.