By Barbara Kollmeyer, MarketWatch
AFP via Getty Images
Are markets getting ahead of themselves? Steen Jakobsen, chief investment officer at Saxo Bank, notes how Denmark is among the first in Europe to announce a plan to reopen the economy. But that will start with only opening schools for the youngest students through fifth grade and nothing else until at least May 10. “This points to the very slow pace of normalization,” he says.
Luc Filip, head of private banking investments at Banque SYZ in Geneva, who provides our call of the day , adds to that, saying that investors need to remember that a “peak number of cases doesn’t mean the economy will be reopened next week.”
That said, Filip sees the risks of markets dropping another 20% or 30% lower than two weeks ago, because of the extensive measures by governments and central banks. He is more cautious on U.S. equities, though, due to poorly coordinated COVID-19 measures between states and the federal government.
“There is a risk that the U.S., by postponing stronger measures, by hesitating, may have a larger outbreak and then a larger impact to the economy,” says Filip.
Where does that leave his investment choices? Outside of gold and the dollar, for now, he is focusing on quality stocks both in the U.S. and Europe, where they are shifting toward a neutral position because governments have taken up measures fast.
“Big companies, strong balance sheets, strong market positioning, low debt. These kind of companies, we like them in Europe and the U.S.,” he says. Those names include Google-parent Alphabet /zigman2/quotes/202490156/composite GOOGL +1.43% , Amazon /zigman2/quotes/210331248/composite AMZN +1.41% , Mastercard /zigman2/quotes/207581792/composite MA +0.21% , L’Oréal /zigman2/quotes/204720038/delayed FR:OR +0.11% , which has global reach and Nestlé /zigman2/quotes/210131093/composite NSRGY +0.48% /zigman2/quotes/208115528/delayed CH:NESN +0.06% .
Companies need to have sufficient reserves to survive lower revenues from a demand drop, and while these may not be the cheapest stocks and sometimes viewed as boring, he bets a few will be “even stronger after the outbreak subsides.
“What we don’t recommend now is to chase companies that are under stress, companies that have weak balance sheets. We don’t like them and don’t want them now, even if they are 40% lower. In the case all this lasts longer, the worse it will be for low-quality companies,” says Filip.
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