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What investments are advantageous in a pandemic?

Coronavirus pandemic, which started actively spreading in Europe in March and April, caused unrest among P2P investors. Concerned about the increase in default rates, some of them started looking for other investment opportunities. Let’s see how justified they are in the current reality.

Certainly, diversification of assets is the cornerstone of any effective investment strategy. It is important even during the financial instability and lack of clear future prospects. Keeping this in mind, it is still necessary to reassess at least the basic nuances of a market in the changing conditions.

 

Investments into business

The most common alternative to P2P investments — stocks — has been one of the most profitable investment instruments. With a thoughtful approach and sufficient diversification, investors can count on good returns. This is facilitated by the initial drop in quotes, and a potential increase in the importance of some industries — in particular, those operating online: distance shopping, delivery services, fintech etc.

On the other hand, as the pandemic proceeds, the market gets less predictable. First, there is a higher possibility of a slow economic recovery. This is clearly a negative factor in terms of investing in stock markets, because the value of an average stock will grow very slowly. This lowers the demand and the price, and returns on investment in the long term (because it will be necessary to begin from a lower starting point to win the positions back). Secondly, the number of players and sectors, which are traditionally considered stable, is decreasing. Today, the oil and gas sector, engineering, tourism, “physical” retail etc. cannot be called stable. Finally, even potentially growing segments may face a slowdown due to the reducing consumer activity. For example, online services, especially those related to entertainment, may experience a drop in demand with a decline of income.

The main tips for those who are still willing to take advantage of investing in stocks are to retain certain promising assets (rather than selling them at low quotes), review the distribution  of the current portfolio taking into account the changing world situation, and acquire reliable dividend shares. Yet, in general, the risk of such investments today is higher than usual.

As for direct investments in business via crowdfunding, obviously, they have the same disadvantages as described above. In addition, they pose even greater risks, as mostly, they lack strong guarantees of return on investments.

 

 

Less obvious alternatives

Bank deposits and bonds do not provide any fundamentally new advantages for investors. They remain traditional tools for obtaining minimum yield with maximum safety. Amid a drop in GDP (since there is a chance that in some countries consumption will not have time to decrease proportionally), the attractiveness of deposits and bonds remains low.

Gold? It is remarkable that the wave of HIV in the late 1990s – early 2000s and SARS epidemic in 2002-2003 led to the totally opposite trends. So, it is unclear, which scenario will take place in the current situation. The graph of quotes from the beginning of 2020 is generally growing. But it is significant that the coronavirus restrictions at the end of March actually caused a month-long decline. Nevertheless, gold has proved itself as a significant asset for diversification. 

Investments in real estate look like a good option, which can now be purchased with a good discount (take the example of Great Britain) hoping for price growth after the pandemic. However, it can hardly be called a panacea — at least because of the high level of entry, quite a  long term of investment and the low likelihood of effective performance of these assets today. At the same time, the situation around coronavirus reduces the degree of the demand both in the residential and commercial segments.

 

Meanwhile, the P2P lending market looks like one of the attractive diversification options for investors during the transitional period of coronavirus restrictions. The reasons are a potential long-term growth of demand for alternative loans during the economic recovery, the online nature of the segment and strengthening positions of players who successfully fulfilled obligations to investors even during the challenging time in March and April.

2020-07-16