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At first glance, the situation now is really scary. Equities fell by 30 per cent, high yields down by 20 per cent, and even government bonds and gold is getting cheaper. The Coronavirus catastrophe of 2020 will probably be remembered in history, as well as similar situations of 1929, 1987 and 2008, but the key difference of the current situation is obviously the fact that we are still in the middle of it.
So, what to do if you have invested in the UAE property or planned to invest in the nearest future? Today we will share our analysis of current events, and give some recommendations on what to do, and, perhaps more importantly, what should be avoided in such an unusual context.
COVID-19 is pushing the world toward a global recession, ending the longest expansion in history. The scenario currently predicted by experts for global housing markets in 2020 ranges from stable to negative in developed countries, but uncertainty still prevails.
But it is not all that bad. Governments are taking unprecedented measures to support the economy and business. State aid, from fiscal stimulus to various monetary aid funds and commitments from developers has already reached US$3 trillion worldwide. Moreover, the most active public health measures for combating the virus in various countries already bring positive results.
All these in mind, we have formulated some key recommendations for you as investors in order to help you navigate in this unusual situation. Let's start with what to avoid.
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DON’T PANIC. The main advice today, both from doctors and business analysts, is the same: don’t panic. As long as your investment plans have long-term horizons, your investment portfolio is safe. Historically, the return on investment over a 5-year period is more than 86 per cent for equities and is close to 100%per cent if the valuation of the asset was low, whether it be equities or property units.
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NO SHORT-TERM INVESTMENTS. The difference between speculation and investment lies mainly in diversification and rationality. Therefore, it is impossible to predict the return from short-term investments, especially for one specific asset. Hence the advice: in difficult times, don’t take risks and don’t bet on short-term investments, even if they look lucrative.
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DO NOT PUT ALL EGGS IN ONE BASKET. Do not invest in certain assets in unreasonable proportions, especially with different expected return time, because this can make you a forced seller at the most inopportune moment.
Now we’ll consider the positive aspects that any crisis always has, which makes the crisis a favorable time for long-term fundamental investments. You just need to follow a few simple rules.
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PLAN FORWARD. Plan your investment returns taking into account your financial goals and with a margin of time in case of unforeseen events. There is a principle of allocating investments for 3, 5, 7 or more years with attractive expected returns, which after this time can be obtained due the current turmoil. For shorter-term investments, level the timing and risks to focus on safety, rather than higher yields.
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DIVERSIFY: this is the golden rule for a wide variety of asset classes and regions. It is also about planning returns from investments in a different way (or better, ways) rather than your main source of income has, whether it be oil, tourism or leasing properties.
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INVEST PROGRESSIVELY: the oldest systemic investment approach, probably, is one of the wisest. Investing a fixed amount each month in a diversified portfolio averages the initial cost of investment and the returns it provides.
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ADAPT to changing market conditions. The previous decade was about the incentives and passive investments, and the current one is more about flexibility, selectivity and the ability to quickly adapt to the situation.
We live in extremely difficult times. But with regard to future investment return, the current situation may just be a great opportunity. Stay safe, keep calm and invest wisely in the long run.
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