Investors should look beyond Covid-19

BATANAI MATSIKA

Negative reports on Covid-19 are everywhere.

There are fears of a global recession and stock markets are crashing with an estimated US$23 trillion having been wiped off in terms of global market value.

In Zimbabwe, Covid-19 cases are creeping up and companies are on semi-lock downs.

The outbreak of the Coronavirus has been described as a “black swan event’ given that no one can predict what will happen next yet the consequences can potentially be severe.

According to a survey done by the Confederations of Zimbabwe Industries (CZI), local manufacturing sector has suffered a staggering 46% disruptions in supply chains due to the ravaging global health pandemic.

These developments come on the backdrop of negative reports on the outlook of the Zimbabwean economy in 2020.

Economists have cited a plethora of headwinds such as (i) another looming drought, (ii) worsening foreign currency shortages and (iii) 18-hour rolling power cuts.

While the Ministry of Finance & Economic Development is forecasting a 3.0% GDP growth this year, a major cause of concern are the economic effects of another drought in 2020.

Zimbabwe as a nation has in the past had about one drought in every 10 years and about one mild drought in every three years.

The country is facing yet another potentially devastating drought that could derail GDP growth projections for 2020.

This also triggers fears amongst investors especially when one considers the impact of currency depreciation and potential loss of value.

Morgan & Co Research maintains a strong view that such events also present an opportunity to a take positions in distressed assets.

While stocks are considered risky assets, there are a number of reasons why you should build positions in 2020.

According to researchers, stocks have beaten every other type of investment over any 10-year period during the last 75 years.

This implies that there is need to take a long term view.

According to research conducted by Jeremy Siegel, best-selling author of “Stocks for the Long Run” (McGrawHill, 2002), stocks are riskier than fixed-income assets, but in the long run, they tend to outperform every other investment.

According to many experts, stocks have returned an average of 11% annually for the last 75 years, handily beating inflation as well as bonds, money market accounts, and savings accounts.

In addition, it is cheaper to buy stocks over the long term, especially if you buy and hold.

Of course, stock market investing has its own risks.

When you invest or trade in the market, there is a chance that you could lose some or all of your money.

The entire stock market could go down in price because of outside events like a disease outbreak (Covid-19), war, recession or even terrorism.

Further, even if the stock market as a whole goes up, there are a number of reasons why your stock could go down.

The goal for many investors and traders, therefore, is learning how to recognize and minimize risk.

Keep in mind, however, that you cannot completely eliminate risk, but you can learn to manage it.

That said, if you do not invest in the market, there is the risk that you will miss out on some very profitable buying opportunities when things unwind.

Investors should take this opportunity to diversify future income streams by buying shares of companies that are well managed, cash generative and exhibit strong growth prospects.

Some of the picks to consider include Innscor Africa, Delta, Cassava, Padenga Holdings, OK Zimbabwe, SeedCo, SeedCo International, OK Zimbabwe and Hippo Valley.

Batanai Matsika is the Head of Research at Morgan & Co and he can be contacted on +263 78 358 4745 or email: batanai@morganzim. com

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