Should we refrain from value hunting in a falling market?

Team Veye | 02 Mar 2020

Should we refrain from value hunting in a falling market?

This week, Coronavirus panic further tightened its grip on global markets as the escalating outbreak drove stocks to their worst weekly loss since the 2008 financial crisis. Is it no longer an outbreak with a billion people in quarantine and is a pandemic, that it is now in 50 countries?

The virus has put pressure on businesses and supply chains around the world. The global stock market plunged to its worst loss in almost nine years and investors worldwide grew increasingly fearful that the outbreak could cause a recession as it squeezes corporate profits.

When many countries were realizing that sending all manufacturing to China was not a good idea, the Volatility Index, known as the VIX, surged to its highest level since the Great Recession, signaling to investors that more volatility could be ahead.

Do the falling stock markets offer an opportunity?

Investors in the stock market are generally known to follow the crowd. If prices are going up, the kneejerk reaction is to go and buy and if prices are falling, this causes panic and people often rush to get out before prices fall too far. This induces further to fall. However, the best course of action is to let the long-term growth take place

Just because the market has fallen over the course of a few weeks should not derail your long term investment plans. One should be aware that such downturns are not abnormal. Without getting impulsive, this could be the time to revisit your investment decisions, rebalance your portfolio and revisit your asset allocation.

As the markets have fallen too fast too soon it appears to be heading towards the oversold area. The risk-reward ratio may also be turning favourable.

Already there have been calls for the Federal Reserve to cut interest rates and with talks of US dropping interest rates very low, even talking about negative interest, the global markets could see a boost.


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