It has been a truly wild period on the stock market and I fear it is going to get worse before it gets better. The coronavirus has ripped through everything and it is panic stations on the markets – as well as in the supermarkets. Some of it is logical: I’m not sure I would want to own shares in an airline right now, nor a restaurant business, and I would not be surprised to see some casualties in the fullness of time if the coronavirus plays out as seems to be expected. On the other hand, the sell-off seems to have been pretty indiscriminate: gold, the apparently ultimate safe haven, suffered a fairly impressive sell-off too despite emergency interest rates cuts and surely more monetrary action to come. Normally that would push the yellow metal northwards…
But these are not normal times. And it seems that logic has gone out of the window in the general population too: why are we (as a country) panic-buying toilet roll? I have not read anywhere that coronavirus leads to mass incontinence (although some of the outgoings from the deadwood press might qualify!). To my mind, the sell-off in gold has marked a general panic and similarly appears illogical. Perhaps the sell-off reflects the strain in the markets as traders have been forced to liquidate what they can (as opposed to what they want to) to meet margin calls and so on. And with the Dow moving 1000 or 2000 points per day (up or down), one can see why the need for liquidity. Perhaps gold was indeed fulfilling its role as the insurance policy of last resort. Of course, gold has only retreated from its recent highs near $1700 per ounce to $1530: stockmarkets have dropped massively by comparison in a generalised rout. And that rout has taken in gold stocks such as my shares in AIM-listed Turkish gold miner Ariana Resources (AAU) which peaked at over 3.5p, and fully-listed Egyptian goldie Centamin (CEY) from a high point of 160p in late February.
In both cases there has been no news and the thing spooking investors is coronavirus. But like almost everything, coronavirus has the capacity to knock things badly off course here. What if Centamin or Ariana have to shut down production in the face of the coronavirus? In Centamin’s case, I fancy not much as it has a very healthy balance sheet – although near-term dividends could take a hit if production is badly affected. In Ariana’s case, it has bank loans to settle and finally clear out next month which could be a worry, but on the other hand with strong precious metals prices for some time now I would imagine that the cash to see off the bank may well already have been piled up, although a statement to that effect would be reassuring. The other thing which is likely to be affected is the proposed corporate action and I would not be surprised to learn of a further delay there: if I were buying into Ariana’s portfolio, I’d rather do it once the crisis has passed rather than hand over any cash right now. There appear to be bargains galore available to the very brave as share prices have collapsed, with seemingly safe dividends now meaning huge yields. But I am not brave (or rich) enough to buy at the moment so the apparent 13% yield on Shell, for example, will pass me by for now – and in any case it is hard to know when oil prices will recover and how bad the rout will get in the meantime, let alone whether the dividend could be chopped at least for a while. As for other shares which I do hold, my portfolio of dividend munchers - BT (BT.A), ITV (ITV), Centrica (CNA) and Vodafone (VOD) - has been hammered.
Taking them in turn, it is hard to see how BT and Vodafone are heavily affected – are you going to make fewer phone-calls due to coronavirus? Centrica will have to deal with fallen oil and gas prices (and, one assumes, associated regulatory encouragement) and ITV will surely take a hit to advertising revenues. But a year from now, as life returns to normal, will those businesses really have changed all that much? I suspect not. As such, my view is that it is time just to sit on my hands: the old adage of act in haste, repent at leisure springs to mind. The one caveat for me is with gold. In the past, gold has shown weakness in the face of a massive stock market collapse. Is it different this time? I fancy not – and the rebound as and when some normality returns will surely see the emergency interest rate cuts and state use of the magic money tree light a rocket under the price. With gold stocks taken into the general rout, if I were brave enough that is where I would look for bargains – and Centamin and Ariana look very cheap indeed at present. But apart from that, doing nothing looks a great move.
We have been overdue a big sell-off and it is now happening. But as sure as night follows day, the sun will still rise in the mornings and there will be a rebound eventually. Why should things be different this time? What happens before then? How bad will the effects of coronavirus be? I don’t know, and neither do the markets – which explains both the magnitude of the sell-off and the volatility. There is nothing markets like less than uncertainty. If it really gets bad then I would expect a recession to take hold and a recovery will be further down the road. But there will be a recovery. And of course there is the possibility that things might not get quite so awfully bad as the gutter press would have it. There is another caveat: if you hold weak tiddlers with cash needs or just almost technically bust then I would be inclined to hit the sell button ASAP: who is going to shovel new money into the market when faced with coronavirus? Exactly! So I would still be offloading my 5 slam-dunk sells for 2020 – namely Tern (TERN), Yu Group (YU.), Walcom (WALG), URU Metals (URU) and Catenae (CTEA). And, of course, Finablr (FIN) is totally uninvestable anyway.
Filed under: Ariana, Centamin, Finablr, Covid-19, G3 Exploration, Time Out, Cineworld, Purplebricks
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