Why lively stock markets can signal opportunity

Stock markets have had a torrid time over the past couple of months as the world has been in the grip of a global pandemic. For many investors, tumultuous stock markets, coupled with gloomy economic predictions and a health crisis, do not make for ideal investment conditions. However, there are plenty of reasons why investing now is a good idea and may, in fact, present more opportunities than when things are looking all rosy.

Cheaper stocks
The sell-off in global stock markets in March means that many stocks became much cheaper than they were at the start of the year. Share price falls during the month were indiscriminate. For some investors, this presents a buying opportunity – remember the adage of ‘buy low, sell high’? While several major markets have regained some of their value, investors can identify which companies are now worth less than they would be otherwise, meaning they can be bought at a discount. But it is important to differentiate these from the companies that have seen their share prices tumble due to long-term structural issues and are likely to stay at low for a while.

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You can’t time the market
There is no such thing as a right or wrong time to invest and trying to time stock markets can end badly. Instead, having decided in which stocks you want to invest, do not try to guess when they might fall further. Rather, do your homework and set a price at which you consider a company to be good value and put your money to work. eToro users can use our risk management tools to be sure they move in and out of the market when they see the price is right rather than try and time things themselves. 

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Markets always recover (even if it takes some time)
As the financial world went into freefall in March and entered bear market territory, investors who had become used to a prolonged bull market might have been worried that they might never recover. But what they need to remember is that equity markets will rally, but that they should get used to some volatility in the meantime. Over the course of April, the FTSE 100, S&P 500 and Hong Kong’s Hang Seng index all rallied to various degrees. While they are still far from the highs seen at the end of last year, it is more than likely that they will all creep up again. We just need a little patience. 

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Safe haven assets
The prices of precious metals, such as gold and silver, have outperformed since February, when concerns about coronavirus began pushing investors towards safe haven assets. Typically, gold and other precious metal commodities are not highly correlated with equities, so as equity markets decline they do the opposite and make gains. Having seen the recent outperformance of precious metals, investors might want to invest in the physical assets or mining stocks to ensure they are diversified.

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Silver lining stocks
Finally, while swathes of the UK economy are closed for business and are simply unable to continue operating during the lockdown, there are some sectors that have benefitted. This is usually the way during any crisis, and investors need to just think about what might do well as others are being hurt. This time around, online streaming services, video calling providers and pharmaceutical companies have outperformed seeing increased demand for their products and services.

It is often when things look the bleakest that opportunities can be found – take some time to consider all the options and now could be your time to invest. 

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