The Effects of the Pandemic on the Stock MarketsBy: Kris- Andrew Brown, Senior Portfolio Advisor Posted:
By now, we would have all become accustomed to the terminology “Covid-19” being tossed around daily. For more than a year, we have endured countless measures implemented in an effort to minimize the spread of this deadly virus. We have observed the Covid 19 protocols and conformed to curfew and lockdown restrictions.
Many of us have experienced life-impacting changes directly related to the unset of the Coronavirus. We have seen pay cuts, job losses, sharp contractions in business activities within certain sectors leading to decreased revenue and even bankruptcy filings. On the heels of the stock market crisis in 2008, many investors, out of fear of Deja vu, panic sold their positions in equities (in some cases even at a loss) and decided to maintain cash positions instead. Investor confidence changed and by extension, the market sentiment dropped from the highs of the boom of 2019’s stellar stock market performance. Industries such as tourism, entertainment, banking, travel, and energy to name a few, arguably took the biggest hit.
Contrary to the common belief that the entire market has been bleeding red, some outliers thrived and returned great results for 2020 despite the pandemic. Companies within the consumer staples, consumer discretionary, health care/pharmaceuticals, and technology space are examples of sectors that saw an uptick in demand and performance.
Let us take one of our local conglomerates, Grace Kennedy, as an example. For the year ending December 31, 2020, GK’s net profit attributable to shareholders rose 38.57% to $6.22Bn year over year. The strong performance in the company’s food portfolio, led by increased demand as shopping activities heightened during lockdown measures, was a major contributor to their record performance. Pre-covid, GK’s stock was trading at $60.02 (March 9, 2020 closing price), fast-track almost a year, and the stock closed at $90.00 on March 8, 2021. This appreciation in the stock price translates to a 50% return during a pandemic.
A similar story is told by the likes of Fontana and Seprod. Fontana has become the one-stop-shop for many households, especially since the implementation of their brand new Waterloo Square location. The enhanced demand for pharmaceuticals caused by the CoronaVirus contributed to the boost in revenues. Investor confidence remained positive and we saw a stock price appreciation of 21% (March 9, 2020-March 8,2021). Seprod Group revenue increased by 16.43% giving rise to an adjusted net profit growth of 2.40% year over year to $2.34Bn. With improved export numbers, expansion of distribution operations due to the incorporation of Facey Consumer, and increased revenues as product demand grows, Seprod is poised for continued growth in 2021. Precovid, SEP was trading at $40.60 (March 9, 2020), today the stock trades at about $82.43 (April 22, 2021, close price).
In the Managing Director of the Jamaica Stock Exchange, Marlene Street Forrest’s opening remarks of the 16th JSE investments and Capital Markets Conference, she said “The COVID pandemic has opened our vistas in our mode of operation,” The same stands true for several businesses that were forced to pivot and adjust to the changing landscape. The increased reliance on technology and its implementation in business processes became prevalent. With many countries faced with lockdown measures and stay-at-home orders, businesses had to resort to video conference services such as Zoom and Microsoft Teams. A 12-month look at the stock price movement for both ZOOM & MSFT would show an appreciation of 94% & 50% respectively.
Not all stocks would have fared as well as the previously mentioned outliers, however, there are still value opportunities to be extracted from the market, in the cases of stocks that are in a loss position. In Forrest’s address, she also expressed the sentiments that “where life gives us lemons, we make lemonade” If we apply this principle to the financial markets, we may find the opportunist investor flocking to the market like happy shoppers do, during a Black Friday sale event. These investors are not necessarily deterred from investing due to depressed stock prices but rather see it as an opportunity to get great value by acquiring stocks at a discount, that they believe are fundamentally sound and present long-term growth potential.
So, yes, the pandemic has done a great number on us. It has taken us for the roller coaster ride of our lives, tossing and turning us along the way. The uncertainty of these unprecedented times has disrupted life in many ways. Though this may all be true, what is also true is that the pandemic has created and carved paths leading to innovation and reform. It has created unique investment opportunities for investors to take advantage of. Consider your glass half full and seek out opportunities that can help to create and build wealth for you and your family in the years to come. Position yourself now, for a greater tomorrow.