Clear evidence emerged of radical shifts in financial markets, much of it attributed to the ongoing Coronavirus pandemic. Luigi Wewege, the SVP and Head of Private Banking at Caye International Bank in Belize weighed in on the topic with us on some insights as to how investors worldwide responded and what might be anticipated next.
Luigi pointed out that: “These are critical moments for the world. I will go so far as to comment on what we have seen and raising some of the common concerns we hear from investors. However, it is clear that as usual, financial analysts have varying opinions on how investors should respond to COVID-19 so responsible investors have to weigh information carefully so as not to overreact or harm their portfolios. Naturally there are two camps here: those who take highly speculative actions who see this as a huge opportunity to profit – and there are those who seek strong defensive positions to cap losses.”
Precious metals have responded drastically in the last month. When asked about gold, silver and platinum, Wewege noted: “If we look at gold as a traditional safe haven investment, you will note that now, with COVID-19, it first made a jump in early February, when many were driven by sentiment to speculate. However, as it became serious – less isolated and a global pandemic, it became clear that a large number of investors turned to cash. The selloff in gold, silver and platinum was not limited to precious metals – it is the same reason the stock market crashed.”
When asked about the issue of volatility, speculation and an outright crash, Luigi Wewege said: “Remember we will always have investors who are buying what they see as a dip. Even when gold dropped over 3%, we have seen huge amounts of money coming in from those who have waited for some sort of a buying opportunity. Although another thing to watch at the moment is real estate. We have investors who have been stockpiling cash and were just waiting to get back into a real estate market that was not so highly inflated. Now with talks of property bubbles that may emerge as a direct result of the Coronavirus, we can surely expect to see some larger portfolios reducing cash and returning to property.”
For markets that hold a very high risk during the Coronavirus (COVID-19) pandemic, Luigi said: “Nobody holds a crystal ball, but it is clear that the global tourism sector covering airlines and hotels in particular, is already suffering. Now in March, millions of people cancelled their upcoming Easter holidays and many more are hesitant over their plans for the northern summer months. It will likely take a long time for businesses to absorb the shock resulting from this. We do not know to what extent government intervention can save entire industries, but it is unlikely to prop up their share prices, as we have seen before.”
Commenting on investors who are impacted by this the most, Wewege noted that “Our clients, regardless whether they are from the USA, Europe, New Zealand or the Middle East, really all face the same concerns. But the main differentiator in how someone would respond, is the size of their portfolio. A small diversification client may need a big chunk of their cash right now, whereas a larger investor may simply be switching asset classes or make speculative moves. At Caye International Bank in Belize we are fortunate in the sense that our liquidity far exceeds minimum requirements and we can weather this storm like we did with the prior financial crisis around 2008.”
Concerning the status of places like Belize and Switzerland as safe havens during times of turmoil, Luigi Wewege said that “Right now the ECB is focusing on Greece and Italy, which are considered high risk countries. This may off course minimize the risk of a collapse in their banks, although we do not know how the European Union and even the United States will finally respond if you consider that freedom of movement is already impacted – and rightly so. But one thing that is clear, is that the money presses are being turned on and that heavy stimulus plus quantitative easing, is well underway in order to prevent collapse and create stability. To people with savings in other currencies outside the Euro and USD, this is not a particularly promising prospect. But do we expect more outflows of cash to Belize coming from these regions? Yes, absolutely!”
As the S&P500 and commodities market have confirmed in the last two weeks: these are highly volatile times and a sense of fear has gripped many investors around the world. The Federal Reserve and European Central Bank should be watched closely over the next few weeks, along with their policies on intervening with more stimulus.