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How Covid-19 might affect your investment decisions
March 20, 2020

These are extraordinary times, and in the face of a global pandemic there seems to be no denying that New Zealand is heading towards a recession. Treasury advised earlier this week that the impact of the coronavirus pandemic could be worse than the impact of the 2008 global financial crisis (GFC).

Business uncertainty is at an all-time high, with no one knowing if or when a national shutdown will happen – or how long it will last. Market volatility is unsettling, and “pandemic panic” has crashed global markets. In such an environment, many small and medium-sized businesses will struggle to survive.

Unsurprisingly, the March ANZ Business Outlook research report shows that businesses are very concerned about the impacts of the COVID-19 outbreak, with exporters particularly hard hit. All activity indicators fell including business confidence, employment and investment intentions. Global trade, travel, and business and consumer spending have all been curtailed significantly with restrictions increasing.

However, this week has also seen an extraordinary response, with the Reserve Bank delivering an emergency OCR cut to 0.25% and a $12.1B economic package announced. Adrian Orr calls this a case of “monetary and fiscal policy working together.” These measures will be a small relief for some, and have generally been favourably received.

At a time of such uncertainty, New Zealand’s financial system remains sound and our major financial institutions are well capitalised and liquid. The Reserve Bank is also ensuring that the banking system continues to function normally.

Should Covid-19 affect your investment decisions?

Now is a good time to take stock of your investment strategy, with the understanding that investment decisions are generally made for the medium-to-long term. With this is mind, it makes little sense to take a reactive approach to investing in the short term, and switching out of investments in the current environment can prove to be an expensive mistake.

As long as you’re getting full information about the risks, it can also be a good time to consider investing in small and medium-sized businesses (SMEs), which offer opportunities for business growth, coming out the other side of COVID-19.

Now, more than ever, there’s a real need for markets such as the Catalist Public Market, which will help to fill the gap in SME investments and support businesses through all economic conditions.

Differing from a traditional stock exchange, the Catalist Public Market will use periodic, rather than continuous trading, with businesses committing to an agreed auction schedule. This helps businesses and investors to maintain a longer term focus, rather than being affected by short-term market speculation.

Extraordinary times indeed – but both investors and businesses will be presented with new opportunities to enable growth and job creation at the other end.

So don’t delay. If you’re an investor considering your COVID-19 opportunities and looking to support Kiwi businesses, sign up with Catalist today.

By Michelle Polglase