Every bull market is the same, every bear market is different. How much more will the stop market drop and how will my peer to peer investments be affected by Corona?
How will Corona affect the stock market?
If only you could look into the future. But wait perhaps you can. They keep saying that Italy is 2 weeks ahead of Belgium, and if I have to estimate I would say Italy is about 3 weeks ahead of US.
Normally the Total cases per 1M / pop would be a good indication on how to determine that but some countries do test more then others so I also look at the number of deaths and the number of serious / critical.
So now that we have a good view on this could we also say that we can predict how Belgian stocks will behave in 2 weeks and US stocks in 3 weeks?
I wish it was that simple. When we look at the stock markets of these three countries in different stages then we see that the trend has been very similar.
So no glass sphere unfortunately. It looks like the stock market already knows how badly Corona will hit the US, and this is already part of the price.
So what can we say about where we are headed? Is the worst now behind or is the worst yet to come? In Belgium stores are now fully closed, restaurants are closed, bars are closed, campings are closed,… and the list goes on. Crucial services only. France is a bit stricter then us, Germany is a bit more lenient. Most likely either the same will happen in the US or the death toll will be quite large. Even if this is already part of the stocks prices right now, I cannot help to think this to would bring a drop in stocks.
At the same time, looking at China, there is sunshine after the rain. After about 1,5 months of very strict quarantine we did see a drop in cases. So lock down works! At the same time China does see new infections coming from Iran and Italy. EU has closed its outside borders and re-opening the borders could be risky as we could re-import the virus.
Its hard to say how many companies will suffer long term effects. Airline companies are almost fully grounded and are taking large losses. Both national and international tourism has come to a sudden stop. Even if they survive it might take some time before people start travelling again. Its quite unlikely anyone is booking international travel for this summer. Pretty much everyone will go on holiday by car.
But there is also plenty of businesses that actually do not require a presence from anyone to function. My first week of working remote was just as busy as always, except that I had slightly less meetings, which is not a bad thing.
So to come back to my question, will the market drop more? I believe it will. When the crisis started I warned the market would drop 40%, well so far it dropped 30%. Of course I hope I’m wrong and the worst is past us.
So what should you do? I would avoid to time the market to start with. I would invest your monthly amount as you always do. And if you do decide to invest more because you are re-balancing with your other investments to maintain your pre-corona balance then I would not do it right now yet. The market is still up compared to the beginning of 2018, so when we put things in that perspective it has not dropped that much. Yet.
The decline in the last 2-3 weeks has been very very steep. Big funds have been pulling out of the market, as they do that automatically when the drop is to big. However at the same time they cannot afford to stay out of the market and miss the recovery. That would be actually worse then when they stayed in. So most likely the market will bounce back. Just when is hard to predict.
And that last part is exactly the reason why I have an automatic transfer the 25th of this month, as every month, and also this month I will be doing my monthly purchase of stocks.
How will Corona affect the peer to peer market?
Now there is a much harder question actually. Unlike the stock market that has gone past dozens of crashes, the only real issues that the peer to peer market had to face so far was increased regulation (that I didn’t expect until 2021) and an increase in scams, especially in the Latvian region.
The actual peer to peer platforms such as Mintos, Grupeer, Iuvo Group, Lenndy, Peerberry, NeoFinance,… all work with Loan Originators. While the platforms are not usually regulated the loan originators are, especially if they are located in EU. That means they must have sufficient cash reserves. On top of that they are all mostly online businesses so will at least in their day to day work not be affected by Corona. Additionally some countries will probably be suspending loan payments for some time. Lithuania has already started doing this, affecting NeoFinance.
I am less confident about the Peer to Business sites I am invested in such as Crowdestor and TFGCrowd. Crowdestor did confirm there was so far no problem with payments and all lenders are reporting a green status. Still what about the Limb Bizkit Summer tour for example? I consider it extremely unlikely at this point that this will continue. I am not invested in this project, but I do remember it. Anyway, there is no way for me to get out early so I do not even need to worry about these as there is nothing I can do about it anyway.
The question you should ask, is it now the time to pull back out of peer to peer and move more into the stock market? I thought about it, and I decided not to do it for now. At least not this month. But I will continue my strategy to move more money into Mintos. I admit you do need to be risk averse to stay in at this point. Looking at a crowded secondary market on Mintos there is quite a few people that do not agree with me.
This does leave me up to some great bargains of loan originators who would otherwise have been to expensive for me. Check these out bellow, I managed to pick up loans from Credissimo, Everest Finanse and Delfingroup. Loan Originators that I otherwise considered to low interest rate to be interested in. Now I can add them to my portfolio, increasing my diversification and lowering my exposure to less reliable loan originators.
When i saw this I moved in extra money into Mintos that I pulled out from other platforms. Bargains like this have not shown up in months and probably will not show up again for a long time once the market has cooled down. I do feel confident in Mintos as a platform since its the biggest one in Europe.
So what should you do?
- Invest in the stock market, monthly as you always do. Panicking now or trying to time the market will mostly be a costly affair.
- If you are into peer to peer and are not afraid of some risk then this is your chance for some great bargains