Canaccord's Champion: The questions clients are asking as the crisis unfolds
Ten questions with... Canaccord's Richard Champion
Deputy CIO at Canaccord Genuity Wealth Management Richard Champion reveals the top ten questions clients are asking the firm amid the economic and financial impact of the coronavirus pandemic.
I'm sitting on a lot of cash - is now a good time to invest?
Markets have been exceptionally volatile. After a very rapid bounce in equities last week, we actually reduced our exposure on Friday, since we think there is a strong possibility that indices test their previous lows, and possibly go beyond them.
We expect a surge in virus cases in the US in particular, followed tragically by a surge in the number of deaths, and think this will knock confidence further.
That said, at some point, for those sitting on a cash surplus, it will be a good time to invest and take advantage of equities that are much cheaper than they were previously.
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But we don't think we have seen the bottom of the market yet.
This crisis and the economic fallout has taken everyone by surprise - we didn't see it coming. But with the crashes come the buying opportunities. And we think that when the rebound comes, it will be sharp.
As it was in 2008, in this situation investors have to be careful of "whales" - even if some stocks go down, it doesn't mean they will rebound. They might not recover.
That's why it is so important to do your due diligence to ensure the business is sound.
Should we go to cash and what can you do to preserve capital?
We have added to our cash weightings after the sharp bounce recently. But we certainly don't think it's a good time to go completely to cash.
If you think about the S&P falling 9% one day and then rising 9% the day after, before falling 12% the next day and rising 6% the next, this is a market within which you can be very easily whipsawed if you try and sell and you may not be able to get anywhere near the price you thought you'd get by selling.
Whenever the markets turn round, you might well find yourself out in the cold and might not have the opportunity to get back in.
It is not totally impossible that once the markets feel that the virus is under control, you could have a rally that could be up to 20% in one day.
The volatility we have seen on the downside could be mirrored on the upside.
Just now, we feel that there is more bad news out there that is not reflected in current market levels.
When is a good time to buy?
We would hold on before committing your uninvested cash right now. We want to see clear signs that the virus case-load is peaking and that there is visibility of the economy getting more back to normal.
The markets might fall further, and at that point we would be investing into them, because once they are on the up, the likelihood is that they will rocket.
Why is gold going down?
When you have margin calls on equities, you find people need to sell something to cover those margin calls and the two liquid markets that investors have sold are gold, and treasury bonds and government bonds in general.
And you have seen a very strong correction but it doesn't mean that these asset classes are going down in tandem with equities.
They are just collateral damage to some extent. And you should see them getting back to similar levels.
Quantitative easing bailout - if there is a bailout of the economy, will it make the country go bust?
With current levels of interest rates close to zero, it is hard to see how the country could go bust.
Governments need to take advantage of the low rates to raise debt to help this country through this tough period and they can always - later on - use some of these investments in a different way.
It is unlikely the country will go bust by saving itself.
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