Black list scam!

Crypto

Where not to invest during a crisis?


The content of the article

Learn to navigate among the many financial instruments and investment opportunities
on the course “Analysis of Financial Markets” from SF Education!

The crises of 1998, 2008, 2020 differ significantly from each other both in the causes of their origin and in the ways of their elimination and consequences. The crisis of 2020 turned out to be unpredictable, caused not by human mistakes, not by economic collapses, but by an external factor: a virus that entailed a large amount of uncertainty, the closure of enterprises, the transition of the whole world to online.

The main burden of supporting the economy fell on the banking industry, which issues soft loans, mortgages, is forced to restructure loans to insolvent clients and, as a result, increase reserves. The sectors for the extraction of minerals, oil, metals were paralyzed due to the closure of enterprises in a self-isolation regime, as well as due to low demand for oil due to stagnation of economies. In self-isolation, people who are not accustomed to shopping for things and jewelry online have significantly reduced the turnover of fashion retailers. There was also a decrease in spending by the population as a whole due to a decrease in the income of the population, which significantly influenced the demand for non-food products. Cosmetics were no exception.

In the event of a panic in the market, investors try to move to sectors that will continue to operate under any circumstances, or to a business that quickly adapts to the realities of restrictions. It is more difficult for giants to carry out reforms, they are less mobile, although companies do have funds to implement various ideas.

Traditionally, defensive sectors are:
– Retail
– TMT (telecommunications)
– Gold mining companies

Retail

Grocery retail is in demand both in war and in peacetime. Stores always receive the status of socially significant enterprises as they ensure the viability of the population. In the case of the 2020 self-isolation regime, retailers have become an excuse for many people to leave their homes, while others have discovered the delights of online delivery, and people have begun to cook more at home. Among the public food retailers, it is worth highlighting X5 Retail Group (Perekrestok, Pyaterochka, Karusel), Magnit. LFL sales growth rates in 2Q20 amounted to 4.3% YoY and 7.2% YoY, respectively, and 6.9% YoY, 6.9% YoY in 3Q20.

Industry index of the Moscow Exchange of consumer sector companies

In non-food stores, such as M.Video and partly Detsky Mir (the share of sales of baby food and goods for newborns in the company’s revenue is 31%), there was an increase in sales due to the transition of the population to a remote mode of work, the transition of schools to a distance learning format, which became a trigger for a spike in sales of laptops and equipment for improving workplaces. M. Video quickly adapted to the limitations of physical visits to shopping centers and launched a number of partner projects for online delivery and issuance of orders from the pickup point (order pickup point). In 3Q20, the share of online sales in M.Video-Eldorado Group’s revenue was 59%.

Detsky Mir saw a modest growth in sales and even a net loss in 2Q20, but the demand for baby food, essential goods, supported the business. An important role in solving the problems of coronavirus restrictions was also played by discounts on rental of premises, as well as measures taken earlier by prudent management, which presuppose a strict dependence of employee salaries and turnover: only 30% of salaries are fixed. Another important factor was lease agreements, which also provide for lease payments only in cases where the company carries out trading activities, if no revenue is generated – Detsky Mir does not pay rent.

TMT (telecommunications)

Telecommunications companies are in demand due to a significant part of the online life of the population. The 2020 pandemic scaled up the need for the quality of the network, for its availability not only in the central region, but also in the regions due to self-isolation.

MTS, the market leader in the Russian telecommunications sector in terms of the number of subscribers and other indicators, attracts investors’ interest both during the crisis period and at the time of the economic boom. The company aims to develop not only the network, but other areas, for example, a bank, a smart home, etc., which gives reason to believe that MTS will be among the winners in the race to build ecosystems in Russia in partnership with businesses or by developing its own infrastructure. It is important to note that MTS pays decent dividends. At the end of 2019, the company allocated 57.3 billion rubles. for payments to shareholders, which corresponds to 28.66 rubles / share (including special dividends arising from the sale of a telecom business in Ukraine), which corresponds to 8.9% yield.

Veon / VimpelCom (or known to all Beeline) focused on improving its core business – improving the network. The company corrects the mistakes of a dispersed strategy, moves away from the ideas of developing points of sale, entering related businesses. Apparently, the exhaust from the new strategy will be seen a little later. Rostelecom (owner of Tele2) lives on government contracts. During the pandemic, there has been an increase in demand for data center services, for communications, for providing secure remote access to employees’ workplaces, on online TV, etc. Rostelecom’s securities were also supported by a program for digital re-equipment of hospitals in Russia.

Moscow Exchange Sector Index of Telecommunications Companies

Gold miners

Traditionally, in a crisis of the state, people try to invest in a reliable asset that has a physical form. The instability of exchange rates leads to a surge in demand for gold both from individuals and from states. The need to increase reserves led to the fact that in 2020 Russia became the owner of the largest amount of gold for the entire period of its existence.

Developers

By analogy with gold miners, people tend to buy real estate, gold and equipment during a crisis.

Concessional mortgages have provided significant support to construction companies. The demand for new apartments in Moscow in 9M20 grew by 26% YoY. In addition to the growth in demand for apartments, the cost per square meter also grew, which provided additional support for developers’ securities.

With the news of economic recovery, there is an increase in demand for riskier assets. These assets include securities of the financial sector, IT (in 2020, IT companies showed significant growth, so further potential is relatively limited), the metal and mineral extraction sectors, oil and gas companies can also recover.

Moscow Exchange Sector Index of Oil and Gas Companies
Moscow Exchange Sector Index of Metals and Mining Companies
Sectoral index of the Moscow Exchange of financial sector companies

Learn to navigate among the many financial instruments and investment opportunities
on the course “Analysis of Financial Markets” from SF Education!

Author: Fomkina Irina, expert at SF Education

Moris Akline
About author

Speculative operations in the foreign exchange and stock market. Work with futures and indices on CME. Work on FORTS and RTS. Development of portfolios and investment strategies for clients. Knowledge of technical (price charts of various types, indicators and oscillators, trends, channels, support / resistance levels) and fundamental analysis, take note of news. I work according to my trading strategy in compliance with the rules of capital management and risk management. Development of trust management strategies. Technique of order execution, placing and changing protective stop-losses, hedging.
Related posts
Crypto

Weekly Trade Recap + USDCHF Range Setup

Crypto

What soft skills are important for working in the financial sector?

Crypto

Manufacturing Data and USD Strength + GBPUSD Priming for Long

Crypto

What soft skills are important for working in the financial sector?

Sign up for our Newsletter