COVID-19 (or Coronavirus) was first reported in China in December 2019. The disease has spread globally, infecting 182k people, at the time of writing. Governments around the globe has acted fast to prevent the spread of the disease. Policy measures include quarantine, school, and border closures, cancelation of public events, many offices, including Grupeer switched to the work-from-home regime. The financial markets are taking a hit- the volatility has risen to 2008 levels. But how will it affect the P2P investments?
What happened to Financial markets?
The stock markets around the globe has experienced sharp sell-off, on the fear of Coronavirus, topped up by the shock of Russia exiting OPEC. Below is the summary of the most known indexes, which portray the situation with equities in the biggest financial hubs. The yield-to-day metric shows how the share prices declined since the beginning of 2020. The fall in prices is not stable, there are days when equities experience sharp rise in price and then they fall again.
The metric which shows the instability on the market (or the share price swings) is called- VIX (CBOE volatility index) and now it is at the levels higher than during the financial crisis of 2008.
Global stock markets have negatively reacted
Volatility index shows how much there is fear
The government bonds in Eurozone also have witnessed the sharp sell-off after the unsuccessful speech by the ECB on Thursday the 12th of March. Unlike Central Bank’s ex-governor Mario Draghi, who reassured that the ECB “will do whatever it takes” during the Eurozone debt crisis (and bond markets calmed down), Christine Lagarde said that it is not ECB’s responsibility to “close the spread”. Well, these words cost a lot, as immediately the government bond markets have witnessed a sharp sell-off.
Across the pond, in the US the Fed has cut rates to the lowest levels since 2015 (0 to 0.25%) to stimulate the economy and announced 700 Bn USD of quantitative easing program. The program would allocate up to 500 Bn USD to US Treasuries and 200 Bn USD to mortgage-backed securities. The bond investors have welcomed the move by the Central Bank and have bought US Treasuries, which has caused the price to increase and yield to drop respectively.
Why financial markets reacted the way they did?
It is understandable that the illnesses and lockdown of people has caused many businesses to close its doors. The tourism and airline industries are particularly affected due to the travel bans, factories are affected by the disruption in the supply chain from China, as well as the shutdown of production in Italy and we will see where else. Other businesses are affected by the domino effect- decrease in demand and consumption. Another way to put this- globalization has backfired us. The world is so interconnected that the disease originated on the seafood market in Hubei, China has spread across all five continents within two months.
The biggest factor that has influenced global stock sell-off is fear because there is no other explanation, why for example, Google (Alphabet) stocks were sold out, as there is great revenue potential in the future. The speculation investment strategy is definitely not the ideal investing behavior as profits can be hammered by the behavior of masses. It is much better to adhere to the Warren Buffet’s investment strategy “Buy & Hold”, focusing on value investing rather than emotional – buy and sell.
Why investing in P2P is a good idea right now
Grupeer has always stressed that P2P is a less volatile asset class with premium returns. When investing in business loans you don’t need to think about where to allocate your money, and constantly check the situation on the markets, it is simply working for you, while you are busy doing other things in your life.
Many people have lost their money in the stock markets, while those holding their money in P2P loans didn’t (unless you trying to sell on a secondary market for a big discount). But as with many shares, there is no rational reason to try selling-off loans on the secondary market right now.
Some are worried that P2P loans will get a hit caused by the coronavirus-induced crisis. But the logics work in another way- right now many customers of micro-financial organizations will need extra cash to fill in the disruption in their regular incomes. The good news are , that all loan originators listed on Grupeer are working fully-online. To get the requested money a customer just needs to fill in the application form online and the money within an hour on the customer’s bank account. Grupeer is satisfied that we have chosen to work only with online loan providers, as during the physical isolation, the online segment gets more demand.
Another good news, the development projects that are listed on Grupeer platform are in the regular construction mode. Our team constantly monitoring, now from the distance, the process of the construction process. In Belarus all construction works are in the same regime. So, in order to safeguard your money during this turbulent time, choose less volatile investments.
Some good news
There good news, the swift response by the government will help to contain the spread of the disease and in the meantime, in the US on Monday 16th of March, they started to test new vaccines. Of course, it will require some time to find the cure and prove its effectiveness, but there is already some progress. Besides that, China, where virus has originated, already managed to reduce the spread of the virus and almost no new cases are registered.
It is an unprecedented event, during modern times when countries have isolated themselves so rapidly and so radically. But this is a good opportunity to look back- what has been done right, learn some lessons and do not make the same mistakes again. During the fast-paced regime that we live are living in, we are now forced to re-evaluate our values. What is important for us as humanity, are we too focused on material things? Now, this is the time to give more time to our families, our children, do things (at home) you always wanted to do, be it drawing, learning a new language, or work on this six-pack you always wanted.
Besides that, the community has shown incredible solidarity. There are many resources now open online for free for the time of quarantine. You can now watch online Met Opera, have a virtual tour in Louvre, Vatican Museums, or listen to cultural podcasts for free, or many other activities offline with your family. Whatever you, do remember that this is temporary and we will get out from the crisis stronger than before. Stay safe!