2022 Investing Opportunities During Coronavirus
In the last year, the explosive mix of the pandemic, lockdowns, government stimulus and vaccine rollouts has had a unique and surprising impact on the world’s financial markets. With high expectations of a global recovery in 2022, investing during coronavirus and the recovery is presenting some very interesting opportunities.
In fact, many analysts are forecasting the strongest global recovery in a decade to play out this year, with some markets entering a once in a lifetime supercycle as we enter the post-recession recovery phase.
Keep on reading to learn about the opportunities when investing during COVID 19, the coronavirus investments to focus on and the individual markets which are high on investors’ watchlists! ▼▼▼
Investing During Coronavirus: The Story So Far
When coronavirus cases started to pick up around the world last year, the S&P 500 stock market index crashed more than 30% from its high in February 2020 to its low in March 2020. The volatility levels of all global markets surged to historic levels, even though the full extent and impact of the coronavirus were not fully known.
Common headlines in financial media at the time included words such as the Great Depression, which instilled fear in many investors at the time. But, investing during coronavirus led to some markets reaching historical highs, such as gold and historical lows such as oil. When deciding what stocks to invest in during coronavirus, the most interesting outcome was the creation of a series of new sub-sectors.
These sectors included the likes of ‘stay at home stocks,’ ‘work from home stocks,’ and ‘vaccine stocks.’ This created an uneven distribution of flows into the stock market not seen for decades. While some stocks performed well, others were decimated such as those from the travel, leisure and energy sectors. Investors mainly opted for growth stocks in the technology sector and indices such as the Nasdaq 100 shown below, rather than value stocks based on traditional valuation metrics.
▶️ Learn more in the 'Growth Investing - How to Become a Growth Investor' article.
▶️ Learn more in the 'What is Value Investing? - Definition, Strategies & Examples!' article.
Source: Admirals MetaTrader 5, NQ100, Monthly - Data range: from 1 Jun 2005 to 23 Dec 2021, accessed on 23 Dec 2021 at 11:30 am GMT. Please note: Past performance is not a reliable indicator of future results.
To start investing during coronavirus successfully, having access to global markets is essential. This will become evident further in this article as we discuss some of the coronavirus investments to watch in global stock markets, as well as the new commodity supercycle taking place.
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Investing During Coronavirus: Where are we now?
Fast forward to 2022 and many analysts, investors and financial pundits are now calling for one of the biggest economic recoveries for decades - albeit with a few blips in the road such as the Delta and Omicron variants. During the pandemic, while countries were in enforced government lockdowns, struggling with a second wave of the coronavirus and new variants of COVID 19, those investing during COVID 19 experienced a huge surprise when global equities rebounded higher.
This caused US stock market indices and Asia stock market indices to surge to record highs. Now, investment banks all over the world such as JP Morgan, Goldman Sachs and many others are calling for a very sharp recovery in 2022 which has helped to fuel an online trading boom and a new commodity supercycle. This is largely down to two factors.
1. Government and central bank stimulus.
One of the first major responses from governments during the pandemic were monetary stimulus measures. In the first two months of the pandemic, governments around the world allocated more than $10 trillion dollars to try and stop mass unemployment and keep the economy moving.
In some countries, the size of the stimulus was nearly ten times larger than the response during the financial credit crisis of 2008. Research from management consulting firm McKinsey & Company shown below, highlights just how large the economic stimulus measures have been during the coronavirus pandemic for different countries relative to the measures in the 2008 financial crisis.
Source: McKinsey & Company, 23 December 2021
Government and central bank stimulus measures often provides the fuel for a sharp stock market rally. After all, the very purpose of stimulus measures are to help the economy grow which in turns helps businesses to grow. This causes investor optimism which helps lift stock prices.
Stimulus measures, such as cutting interest rates, also help large institutions borrow more very cheaply. Much of this then finds its way into yield-producing asset classes, such as the stock market. It’s just one reason why many global stock market indices are already trading at record highs.
2. Coronavirus vaccine rollout.
Financial markets around the world have also received a boost from the rollout of the coronavirus vaccine. This is because it has been helping to lift lockdown restrictions and begin to up economies. You can learn more in the 'Top Coronavirus Vaccine Stocks to Watch' article. While stock market investors have looked towards life after the coronavirus vaccine rollout, it has been the currency market that has received the most amount of flows.
For example, in early 2021, the UK government was leading the race in how many citizens had successfully received the coronavirus vaccine developed by AstraZeneca and Oxford University. This caused the British pound to be one of the top-performing currencies, as traders speculated on the economy reopening quicker than other regions.
During this time, the European Commission announced that AstraZeneca informed them that they could only deliver a quarter of the vaccines they agreed upon. This delay and slow rollout in the European Union caused a huge sell-off in the euro. The EURGBP exchange rate crashed to eight-month lows as traders speculated on a slower economic recovery for the European Union and a faster one for the UK.
Source: Admirals MetaTrader 5, EURGBP, Daily - Data range: from 4 May 2020 to 23 Dec 2021, accessed on 23 Dec 2021 at 11:30 am GMT. Please note: Past performance is not a reliable indicator of future results. Last five-year performance: 2020 = +5.61%, 2019 = -5.72%, 2018 = +1.17%, 2017 = +4.12%, 2016 = +15.69%, 2015 = -6.58%.
In the daily chart above of EURGBP, it is clear to see the sustained break from the horizontal support line (black) at 0.8861. This fundamentally-led move lower was largely due to the divergences in the two countries’ coronavirus vaccine rollout programme, highlighting how important the vaccine rollout is to larger speculators in the market.
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Coronavirus Investments: Markets & Opportunities
Due to the significant stock market crash last year, most economies went into a technical recession. While the recession was short-lived due to government stimulus measures and the potential for the coronavirus vaccine rollout, many analysts now believe that 2022 will exhibit signs of being in the early recovery phase of the economic cycle.
When investing during coronavirus and the recovery, some of the best coronavirus investments may be found by following the economic cycle. This is because the stock market and commodity market returns are heavily dependent on the phases of the economic or business cycle.
In the image below, Fidelity Investments have highlighted which stock market sectors generally perform the best and worst in each stage of the economic cycle. You can learn more about stock sectors in the ‘11 Sectors of the Stock Market You Need to Know’ article.
Source: Fidelity, 23 December 2021
In the early cycle of post-recession recovery, the best performing sectors tend to be in real estate, consumer discretionary and industrials. This is confirmed by the fact the Chief US Equity Strategist for JP Morgan, Dubravko Lakos-Bujas, has stated that in 2022 “the largest beneficiaries will be stocks at the epicenter of the pandemic such as Consumer Discretionary and Financials.”
In the next section, we discuss some of the possible coronavirus investments that investors are watching for 2022. This includes the potential opportunities when investing during COVID 19 in the currency market, stock market and commodity market which some say are starting a commodity supercycle.
Before we dive in, did you know that with the Admirals Invest.MT5 account you can invest in stocks and ETFs from 15 of the largest stock exchanges in the world with low commissions starting from just $0.02 per share for US stocks and a low minimum commission of just $1?
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Coronavirus Investments: Stocks & Indices
Most analysts are forecasting higher returns for US stock markets, even though valuations remain quite high. However, as most fund managers say ‘where else do you put your money?’ with such low returns from cash amid a backdrop of low-interest rates around the world.
This presents some interesting opportunities in both individual stocks and stock market indices.
✴️ S&P 500 Index - $5,200?
Investment bank analysts at Credit Suisse have a year-end 2022 price target for the S&P 500 stock market index at $5,200. They highlight that while the equity price to earnings ratio is expensive traditionally, they’re not that expensive when considering low interest rates (which are still low even with the Fed expecting to increase them 3 times in 2022) around the world and the upcoming growth prospects.
Source: Admirals MetaTrader 5, SP500, Monthly - Data range: from 1 May 2005 to 23 Dec 2021, accessed on 23 Dec 2021 at 12:30 am GMT. Please note: Past performance is not a reliable indicator of future results.
In the long-term, monthly price chart above of the S&P 500 stock market index it is clear to see there is still further upside yet to develop towards the $5,200 price level. However, the index comprises the largest 500 stocks listed on the New York Stock Exchange and includes stocks from a variety of sectors. This means the index is affected by the best performing and worst-performing sectors.
Investors may consider focusing on individual stock sector ETFs (exchange traded funds) for exposure to specific sectors. Alternatively, investors could focus on individual stocks within the sectors that are likely to perform well in the early recovery phase of the post-recession cycle. You can learn more in the 'How to Trade ETFs with €1,000' article.
Coronavirus Investments: Foreign Exchange
While many investors look towards the stock market for investing during coronavirus and the recovery, the Foreign exchange market is also presenting some interesting opportunities for larger institutional investors.
In fact, for much of the pandemic institutional capital followed the narrative of coronavirus cases with flows going into countries that were handling the situation better. This helped to lift the likes of the Australian dollar and New Zealand dollar while hurting the British pound. The coronavirus vaccine changed the fortunes for the pound which became a leader early this year due to a successful coronavirus vaccine rollout.
However, it is the US dollar that is the wild card for 2022 but interesting from a technical standpoint, as highlighted below.
✴️ US Dollar Index - Rate hikes priced in or more to go?
Weakness in the US dollar was one of the better performing trades during the pandemic. The US dollar index - which shows the value of the US dollar against a basket of other currencies - crashed more than 13% from March 2020 to early 2021. Much of this was due to the government’s poor handling of the coronavirus as well as the stimulus measures announced by the Fed.
You can learn more about the US dollar index in the ‘How to Trade the US Dollar Index’ article.
Source: Admirals MetaTrader 5, USDX, Monthly - Data range: from 1 Jan 2006 to 23 Dec 2021, accessed on 23 Dec 2021 at 13:30 pm GMT. Please note: Past performance is not a reliable indicator of future results.
In the long-term monthly price chart of the US dollar index above, it’s clear to see the rejection of the $102.94 price level in March 2020 before the more than 13% drop. Interestingly, the chart shows that the index is trading in a long-term consolidation pattern with price approaching the lower horizontal support line at $88.26.
After a big push lower in 2020, the US dollar soared higher in 2021 making it one of the best-performing currencies of that year. The market is now expecting the Fed to increase interest rates 3 times this year. Whether that is already priced into the recent move higher or not only time will tell. But, it becomes an interesting currency if it can move back towards the top of the long-term consolidation.
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Coronavirus Investment: Commodities
The commodity market has received a huge boost from loose monetary policy around the world and the rollout of the coronavirus vaccine. Investment banks from Goldman Sachs to Bank of America are now calling for a bull market run in the commodity sector. JP Morgan believes we have just entered a new commodity supercycle.
In the past 100 years, the commodity market has seen four supercycles. The last commodity supercycle peaked in 2008 and was fueled by Chinese growth. The current commodity supercycle is now being driven by a shift to more renewable energy sources, loose monetary policy and the potential for stronger inflation.
The whole commodity sector has been affected as well, with rising prices in agriculture, grains, energies and metals.
✴️ Crude Oil - A new supercycle?
The oil market had a roller coaster ride in 2020. West Texas Intermediate (WTI) oil crashed more than 80% from January 2020 to April 2020, before staging a near 450% rally back up from the April 2020 lows to the highs of October 2021.
However, many analysts believe the upside is not yet over with OPEC (Organization of Petroleum Exporting Countries) committed to higher prices and lower output as companies focus on renewable energy sources instead. Demand is also likely to pick up even more when individuals can start to travel more freely.
Source: Admirals MetaTrader 5, CRUDOIL, Monthly - Data range: from 1 Jan 2007 to 23 Dec 2021, accessed on 23 Dec 2021 at 14:30 pm GMT. Please note: Past performance is not a reliable indicator of future results.
In the long-term chart of WTI crude oil above, it shows a clear horizontal support level at $34.42. During the pandemic, the price broke through this level before recovering and moving back up. The price then retested this level at the end of 2020. Since then, the price has surged higher to the top of the long-term descending trend line from the 2008, 2013, 2014 and 2018 swing highs and broken through.
The technical break of this long-term resistance line, combined with a positive fundamental backdrop and the start of a commodity supercycle, could see oil trading higher in the long-term. This may also have a positive effect on energy companies which were battered during the pandemic period.
Investing During Coronavirus Risks
While many analysts and fund managers are positive about the growth prospects for 2021 there are still some risks that remain. Some of these include:
▶️ A delay in the coronavirus vaccine rollout. Some countries have experienced delays in the rollout of the coronavirus vaccine. Anything that affects distribution could have an impact on positive growth helping investor sentiment to sour.
▶️ The mutation of COVID 19 into new strains also poses a risk. However, many scientists have said that the vaccine does work on most of the new variants of the coronavirus. This could be a concern if the vaccine does not work on any of the new variants of the virus.
▶️ Much of Europe has been in lockdown for the past several months. There is a growing concern of a spike in infection rates and mutations once lockdown measures are eased. However, governments will likely want to vaccinate most of the vulnerable and key workers first before easing restrictions.
According to Russell Investments, another risk is too much optimism from investors. If everyone remains optimistic these leads to higher prices in stock markets which means any slight negative news announcement could lead to an exodus of trigger happy investors exiting investments early.
The company’s own composite contrarian indicator is not yet at overbought levels but is getting close, as shown below:
Source: Russell Investments, 23 December 2021
How to Start Investing During Covid 19
With Admirals Trade.MT5 account you can speculate on the price direction of global markets using Contracts for Difference (CFDs) to trade long and short on Forex, stocks, indices, commodities and more! Alternatively, through the Invest.MT5 account you can invest in real stocks and ETFs from 15 of the largest stocks exchanges in the world.
In either scenario, you can start investing in the markets of your choice using the five steps highlighted below.
- Open your MetaTrader 5 trading platform provided by Admirals or start your free download here.
- Once you are on the platform, select View from the top menu to open the Market Watch window on the left side of the platform.
- In this Market Watch window, right-click and select Symbols. Here you can search from the +3,000 instruments available to trade on via Admirals. Start typing the name of the instrument and a selection of instruments will appear.
- Press OK to add the symbol to your Market Watch list. To view a live chart of the symbol’s price, drag the text of the symbol from the Market Watch window onto the chart.
- To open a trading ticket, right-click on the chart and select Trading and then New Order. A trading ticket will open up for you to input your own entry, stop loss and take profit levels as well as your position size.
A screenshot showing the MetaTrader 5 trading platform provided by Admirals with a trading ticket open on the chart. 23 December 2021.
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Why Start Investing During Coronavirus with Admirals?
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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or recommendation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.