A still attractive entry point
Despite the rebound observed since mid-March, European markets, in particular the French CAC 40, remain down by around 20% compared to the start of the year. The upside potential therefore remains significant and there is no doubt that current levels can be a good entry point. If we look at a medium-long term horizon, there is a strong probability that an investment in equities made in the current period will prove to be largely profitable within 2 years or more. For this, a good solution is to invest gradually, for example in the form of regular purchases every 15 or 30 days, so as to smooth its entry point over the next few months.
This strategy makes it possible to respond to the possible risk of relapse of the markets in the short term, which is far from zero. The markets remain very volatile and can bring unpleasant surprises. Young investors who are embarking on this adventure for the first time must bear in mind that the stock market is not a casino. The important thing is therefore to build a good strategy to deal with possible temporary losses. In addition to investing gradually, it is especially important not to invest the sums that we may need in the coming months.
Limited bankruptcy risks
Despite this prudence, which remains essential in the investment world, the current crisis does not carry the same risks as those of 1929 or 2008. Many States have indeed decided to take exceptional measures to allow companies to get through this bad safe from danger. France particularly stood out in this area with the massive use of short-time working and the establishment of State Guaranteed Loans (PGE), which allow all companies to face their possible difficulties by limiting their risk of bankruptcy.
Also read: How does the state guaranteed loan work?
Likewise, the banking and financial systems are this time a solution to the problem, not one of its causes. The recovery in activity after the current supply shock should therefore allow a fairly rapid return to normal, even if companies will remain more indebted than before.
Debt absorbed by central banks
Companies will not be the only ones to see their debt increase. State debt will also experience a historic leap, higher than that of the 2008 crisis. At the time, this problem had led to doubts about the sustainability of European sovereign debts. However, here again, the problem is no longer the same.
Since 2015, the European Central Bank (ECB) has taken its cue from the Fed by supporting the debt of States, but also that of companies. The institution, which has the power to create money, massively buys the debt securities that circulate on the markets, thereby allowing borrowing rates to remain very low in Europe. Debt is no longer a problem because it remains very inexpensive. Europe can refer here to the example of Japan, a highly indebted country (debt / GDP ratio of 250%) but where borrowing rates have remained at the bottom for 20 years.
The emergence of new opportunities
At the end of this crisis, not only will our relationship to debt change, but also our relationship to telework and health. For these reasons, the crisis we are experiencing will create profound changes which are already translating into new market opportunities.
The current situation is ideal for “stock pickers”, that is to say investors who are careful in choosing the securities that make up their portfolio. Some companies will benefit in the long term from changes in our behavior, for example in the digital services sector. The high volatility observed on the entire quotation also creates opportunities for other more traditional companies, which have become undervalued compared to their fundamentals. Volatility of course results in higher risks of loss, but also in prospects of higher gains.
Investing now is acting against the crisis
Finally, it must be borne in mind that an investment directly or indirectly helps support the companies to which this savings is directed. In the current context, this support makes sense because companies need it. By benefiting from confident shareholders, companies will be able to recover more quickly from the crisis.
It is quite understandable that some investors prefer to secure their savings rather than supporting a business. Accumulating reserves on a Livret A, now remunerated at 0.5% per year, is not necessarily the best choice to make to place your excess savings and give it meaning. We can therefore only encourage investors to remain active in the current period despite the risks inherent in investing, by staying on the lookout for opportunities.