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How is Covid-19 shaping investor behaviour?

Covid19 investor behaviour

The coronavirus pandemic triggered shockwaves across the economy, shaking financial markets and faltering investor confidence. Covid-19 restrictions swept across the nation in response to the greatest economic calamity since World War Two, paralysing trading activity across key sectors such as retail and hospitality, while other industries soared in profitability.

Market leaders experienced a change in the current as the tide flowed in favour of businesses naturally set up to facilitate a contact-free life, as instated by Covid-19. The overnight transition to working from home, limited social contact and vetoed mass gatherings reshaped the financial prospects of UK businesses and their investment value.

As we enter 2022, the mass rollout of the vaccine is accelerating economic recovery and reviving investment activity while the pandemic shows no sign of raising the white flag of surrender. We assess how Covid-19 is shaping investor behaviour, including financial security and risk appetite.

Fishing for assurances during a time of global uncertainty

The economy sunk into a deep recession following the onset of the coronavirus pandemic as trading screeched to a standstill, tumbling the value of hard-earned savings scored by tactical investment decisions.

While governing institutions around the world raced to assess the severity of the threat posed by the virus, investors held their breath until the gravity of the situation could be unearthed. The government’s attempt to stabilise the economy and prevent company insolvency involved unveiling a stimulus package that disbursed over £79 billion through loans and similar facilities, according to the House of Commons Library.

In the investing world, with a recession comes a host of opportunities to invest in undervalued stocks likely to resume growth, post-recession. This is also when the ‘Buy and Hold’ investment strategy comes into play, putting investor loyalty to the test during times of economic disruption.

The new normal – what sectors are thriving during Covid-19?

As businesses begin to climb the ladder of recovery, either fuelled by the stimulus package from the government or company reserves, shareholder support is crucial to the rehabilitation process. There are clear pandemic winners and losers which influences company valuations and investor behaviour as businesses work to recover income.

Covid-19 winners 

Apple – The tech giant experienced a 123% change in market value at the end of 2021, nearly a triple to that in March 2020, before the pandemic, according to the Financial Times. In January 2022, Apple became the first company to hit a $3 trillion stock market value.

Microsoft – As businesses invested in digital transformation, the shift to cloud computing was evident as it fed into the pocket of the household software provider.

Microsoft Chief Financial Officer Amy Hood told Reuters,

“This was really driven by continued customer demand, with stronger-than-expected consumption as customers have increased their focus on digital transformation.”

Tesla – The automotive pioneers soared past a £1 trillion market value in 2021, as consumer demand for electric vehicles skyrocketed in line with the climate change conversation.

Amazon – The multi-national tech company generated a record £19 billion in UK sales in 2020, an increase of 51% as retail businesses were forced to close their doors due to Covid-19 restrictions.

Netflix – The streaming giant delivered in-home entertainment while families were confined to their homes, connected by Netflix parties. Netflix prospered during the pandemic and hit a record £36 million subscribers in 2020.

Although Covid-19 restrictions halted operations for many businesses, it enabled digital giants to claim their ground as working from home was facilitated by the likes of Slack, home workouts by Peloton and grocery shopping by Uber Eats.

This initiated a yo-yo effect as company valuations surged as a direct result of pandemic demand and plummeted for companies where trading was disrupted due to Covid-19 restrictions.

Investor lessons during the pandemic

As economic unrest settles and we enter the post-pandemic era, investors will be able to differentiate between businesses piggybacking off a temporary sales surge, and those demonstrating true and sustainable long-term growth.

The risk appetite of short-term and long-term investors will vary; however, Covid-19 reaffirmed the basics of investing which is to hold your ground in a market panic and assess the risk psychologically and in terms of sales.

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