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Genghis 2Q20 Equity Investment Strategy

The COVID-19 pandemic hit fast and hard. In just a few weeks of the month of March, the global economy was down on its knees. Before the pandemic, the general feel was that we were in the tail end of economic and market cycles (especially in the US and advanced markets). However, nobody could have predicted at the start of the year that in just a few weeks’ time, almost the entire global economy would come to an abrupt halt caused by the COVID-19 pandemic. The aftermath is not a normal recession but a sudden shock to the economy that is unprecedented in its severity, its scale and spread.

Our equities market is expected to reflect this economic reality. Companies will struggle with revenue, meeting their fixed costs and ultimately, cash flow and thus 2Q20 is likely to be more difficult for majority of investors. However, with the market firmly in multi-year lows, we do not expect further significant downshifts but there remains possibility of a retest of the multi-year low levels we observed in March (NSE-20 at 1,873.47 and NASI at 123.4). Given the fluidity of the situation and as government comes up with tougher measures to contain the pandemic, volatility in markets is expected to be heightened.

Going into the second quarter of the year, the words of Benjamin Graham popularized by his foremost student Warren Buffett couldn’t be much truer in the current COVID-19 situation. “In the short-run, the market is voting machine, in the long-run it is a weighing machine”. The current market presents rare attractive investment opportunity into fundamentally strong undervalued counters. With expected volatility in markets into the quarter (possibly the next few quarters), investors should be nibbling on rather than gorging on the strong stocks as prices dip further. We are especially biased towards stocks with fortress balance sheets to endure the pandemic without reliant on significant leverage and to accelerate growth in the post-COVID era.