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Autumn has arrived, and with it the second wave of the coronavirus epidemic in the markets. September brought the guilder and stocks crashing, the price of the euro rose above 360 guilders and the US indices, which were still at an all-time high in August and the first days of September, fell several percent in a few days.
The tech stock market, Nasdaq, is slowly down 10 percent from the record after previous big favorites Apple, Facebook, Alphabet (Google), fell by double digits in a few days.
They speculated but they got cold
Nasdaq’s rise received a geller, said Gábor Czachesz, chief investment officer at OTP Alapkezelő Zrt. Deep down, according to the expert, a speculative story may lurk. An asset manager traveling on various investments, Japan’s Softbank Group, launched a hedge fund in the second quarter, buying so-called out-of-the-money call options on American tech stocks.
These are options that would have allowed them to buy stocks well above the market price at the time, and they were cheap at the time, as no one thought that the price of tech papers would go up as much as it did in August. These options will be valuable if the stock price continues to rise. However, in addition to Softbank, many have similarly argued that it may be worth investing in stocks of low-cost tech companies temporarily in this way, and these solutions have also become popular with small American investors.
But on the other hand, sellers didn’t want to fall too low on the deal either, as option issuers saw the price go up, they quickly started buying shares so that if buyers wanted to pay for the option, they had enough paper, preferably the most cheap possible. This so-called delta hedging (that is, hedging options) pushed exchange rates even higher.
It was surprising that the market rallied despite the second wave surge, but now it seems clear what the situation is, Czachesz said. As the maximum price of call options got closer and closer to the real price of the stock, these delta hedge purchases accelerated, causing prices to skyrocket in August. It is not possible to know what the exchange rates were in the original call options, but it seems that the moment of sobriety has come, now the prices are falling, the issuers of the options are not buying but selling, causing the values to fall even faster.
Look for cyclical papers and streaming providers
The Nasdaq has turned into a swamp, said Czachesz, who said so-called cyclical stocks were now more worth buying. These are the sectors that move along with business cycles. If the economy is doing well overall, it is performing better than average, if it is doing poorly, then it is doing worse. These can now be the stocks of the European banking sector, industrial companies, including car factories, tourism companies and airlines. If good news emerged about an effective vaccine, these articles would immediately start to rise, it would be worth investing in them. However, buying individual stocks is not recommended by the expert, as the risk of bankruptcy is high, it is worth thinking about a portfolio instead of spending all the money on the securities of a shipping company or airline.
So-called streaming providers like Netflix, Hulu, Apple TV, and others, will also be clear winners from the quarantine. The rise of such services had already started before, but the coronavirus epidemic had shifted its speed to turbo speed. Netflix is at the forefront of this battle, measuring viewers’ habits with excellent software and supplementing its offering with corresponding content.
Although Disney is somewhat behind schedule due to the subsequent release, it is developing rapidly and has very serious content of its own, with which you can catch the competition, especially if you block Disney content from elsewhere, says Szilárd Buró, Equilor Befektetési Zrt. head of financial innovation. However, when buying Walt Disney stock, it should also be noted that the company’s other businesses, such as movie production or amusement parks, are not doing well during the epidemic period.
Pharmaceutical companies will not disappoint
Another winner in the period of the pandemic is the pharmaceutical industry: not necessarily because of the development of vaccines, since eventually there will be only one winner in that market, the company whose product will be bought and used by all states. The big pharmaceutical companies, on the other hand, have the flag.
Small businesses that have dabbled in development but are not winning can make big profits in the stock market. Large pharmaceutical manufacturers, on the other hand, stand to gain a lot if they have the adequate manufacturing capacity to produce a vaccine on a large scale. There can be great stories in this sector, Buró said.
Pharmaceutical factories continue to resist crises, as do health companies, confirms József Miró, strategist at Erste Befektetési Zrt. There are several drug companies whose shares have recently fallen, although if the vaccine were to come out, they might even benefit from it. Even with advertisements such as the recent Astra Zeneca has stated that it will sell vaccines in the first round not for profit, from which it can produce up to 3 billion units annually. With such an item, a profit of $ 1-2 per vaccine would be significant.
According to Miró’s other investment advice, it may be worth buying stocks in the region that have relatively high dividend yields in euros. Such may be the roles of real estate users, utility companies, and insurance companies. Insurers are one of the winners of the epidemic, as customers continued to pay premiums, but claims rates fell.
Inflation rises, gold must be taken
All professionals expect rising inflation in the future. In Hungary, the August figure was 3.9 percent, but due to loose monetary policy by central banks, prices are rising in other parts of the world as well.
“I would not put government securities on a stick in this situation either,” said an investment expert in response to the situation.
In Hungary, however, the situation is slightly better for retail government securities. With any inflation, even Magyar Államampapír Plusz (MÁP +) may not be a good investment in the first half, with an interest rate of 3.5 percent in the first half of the year and an interest rate of 4 percent in the second half of the year.
In an environment of rising inflation, experts clearly see gold as a good investment. If the situation worsens, of course, it could lead to a strengthening of the dollar, which could have a negative effect on the gold exchange rate, but only in dollar terms, warns Miró. Investors in HUF, on the other hand, are likely to receive less than this in HUF terms.
Gold and silver are clear winners of the situation, gold has hit an all-time high recently, and while there has been a correction since then, the trend is clear, says Buro. The Equilor expert said the market for other metals may also be interesting, as copper, nickel and zinc prices have risen in the recent past due to investor sentiment. These metals become more expensive due to the spread of renewable energy, as they are also important raw materials for solar cell production and are also needed in the batteries used in electric cars. The rise in their market is also driving up the price of these metals. “It is even possible that the market supply, the capacity of the mines cannot follow the demand,” says Buró.
(Top image: Traders on the New York Stock Exchange on March 20, 2020, when the Dow lost 500 points during the coronavirus epidemic. Photo: Spencer Platt / Getty Images Hungary)
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