Crisis stages shape opportunities

The three stages of the current health and financial crisis are shaping the recovery and highlighting new issues as we move through them.

“Markets are trying to digest a lot of information, it’s like living in a machine,” said Amit Lodha, Portfolio Manager, Fidelity Global Equity Fund of the current operating environment.

In a webinar session titled ‘Going boldly where no one has gone before’, Lodha explained the three stages of the crisis and what he is thinking about most.

Stage one is an escalation of COVID-19 and is the stage we are in now. Stage two is the “real worry” as it will show the impact of the unprecedented shutdowns. “How we navigate through stage two is important.”

Stage three is recovery and Lodha said if you are a longterm investor, this is where you want to spend the maximum amount of thinking time about options and possibilities.

With a move to defensive stocks, portfolios are looking quite different now. The Fidelity Global Equity Fund currently has an exposure to Berkshire Hathaway, previously not a stock in the portfolio, reflecting the flight to safety. Another stock the Fund is investing in is Nestlé.

“The market is very dislocated. Get rid of anything that is high debt or where convictions are low.”

The right ingredients for a portfolio include healthcare stocks which are focussed on finding a vaccine or are supporting human life.

Other favoured stocks include Ocado, the online supermarket in the UK and Nike, which despite facing challenges in the past with its digital platform, is experiencing massive uptake now that people are not shopping in shopping centres.

But there are still a range of unknowns lurking in the economy and we are unsure of their impact. This include the impact of lower interest rates for longer, and the speed of which fiscal policy can come to the rescue.

“Fiscal stimulus is impacting markets and how it makes its way into the market,” said Lodha. “I am spending a lot time thinking about that.”

Another issue to consider is the fixed interest market. Bankruptcies are going up, companies are retracting, and there is no dimension of planning that allows for planning for this sort of crisis.

“If companies have not gone into the crisis with a good balance sheet, they are going to find it very hard.”