The world has been deeply shaken by the economic impacts of the pandemic. With dozens (if not hundreds) of businesses on the brink of collapse, what are the potential safe investment routes for business owners and moguls in 2021? Let’s break them down in detail.
Founder and CEO Mark Props said that “Valuations are low and Emerging Market currencies are undervalued, assuming that central banks in developed countries will remain accommodative. Emerging Market bonds in local currency are also a good diversification tool in portfolios. Leveraged loans in Europe offer both an attractive risk/return profile and a natural protection against the risk of rising interest rates since the income generated is based on variable interest rates. This type of asset is not suitable for all risk profiles. Liquidity can be low, so we recommend investing over a long period.” This is a clear example of the fact that medium-tier investment approaches (i.e. done via commercial property auctions and residential property auctions) are stably becoming the new normal in regards to investment routes.
But Why Though?
According to Mr Props, “The sharp increase in volatility since the beginning of the pandemic offers a more favourable environment for structuring products selling volatility with attractive asymmetric payoffs. These products quite frequently have partial capital protection. They are structured on very different underlying, with varying degrees of complexity, from a simple stock market index to term contracts, options or interest rate spreads. Structured products are portfolio diversification tools that can improve risk/return.” This exemplifies the fact that markets will inevitably see a consistent (if not absolute) collapse within the economy that will most definitely lead to a further collapse in investment routes, especially if experimental.
Pointing out all the risks will be definitely complicated but, according to Mr. Props “The Covid-19 pandemic is a triple shock: human, production capacity and consumption. Companies will look to diversify their supply chains and digitise their processes. The shock on business volumes and cash flow generation will require limiting capital expenditure. Adding to this will be a focus on health care, which will lead to a drop in ordinary household spending.”
He then also said that “all of these factors, along with the structural trends of deglobalisation and the need for deleveraging, will feed an ongoing appetite for quality stocks, and thereby maintaining their high price.”
Risk factors in a post COVID world are definitely going to be perceived with a bigger attention within the investment field and it’s quite safe to say that companies will be far more strict with development and expansion.