An ongoing market correction provides a good opportunity for retail investors, but as the default rate for investment-grade bonds is expected to rise amid the COVID-19 pandemic, they should avoid high-yield and emerging-market bonds, Standard Chartered Bank Taiwan Ltd (渣打台灣銀行) said.
“It is difficult to give an overall piece of investing advice amid the outbreak, as everyone has different risk appetite. Some investors turned conservative from fear of the virus, whereas others improved their appetite with an aim to buy on dips,” director of wealth management Terry Chen (陳太齡) said by telephone on Wednesday.
Those who want to take advantage of the market correction and increase their investment at a lower cost should consider buying US corporate bonds with good ratings and corporate bonds issued by companies in net oil-importing countries, as well as US medical, healthcare and technology stocks, or any stocks with good cash dividends, Chen said.
As the price of crude oil is expected to remain at less than US$40 per barrel for several months due to weak demand worldwide, companies in net oil-importing countries might benefit, he said.
Investors should stay away from high-yield and emerging-market bonds, as well as bonds issued by energy and tourism companies, he added.
The bank expects the 10-year US Treasury yield, a gauge of market interest rates, to slowly climb from about 0.6 percent this week to 0.85 percent in the second quarter, Chen said.
Although the 10-year Treasury’s yield has been falling since February due to a global flight to the safety of government debt, it is likely to rise late next month or in June due to lower demand if the pandemic is contained, he said.
In the meantime, investors should increase their holdings of cash and gold to hedge against market volatility, Chen said, adding that the bank has forecast that the spot price for gold would advance to US$1,750 per ounce this quarter.
The spot price for gold was US$1,607 per ounce on Thursday.
Investors who have seen their assets shrink due to the retreating equity market should remain calm and not sell their assets unless they have an immediate need for cash, as history has shown that markets will bounce back, Chen said.
Amid high volatility on the market, retail investors can concentrate more on longer-term investments and diversifying risk, he said.
The bank maintains its core scenario that the global economy would hit bottom at the end of this quarter and recover in the second half of this year, which would enable global equities to exit a bear market, Chen said.
“However, we cannot fully rule out the possibility that the global economy might continue to decelerate until next year if the spread of COVID-19 does not peak in the US and Europe this or next month, which would slash global investment and consumption,” he said.
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