Alternative Investment  

Covid-19 lessons of investing

US dollar prospects 

In the past few months, investors have been rallying to the US dollar, seeing it as a safe haven.

As a result, some commentators are fearful its spike in demand is unsustainable, anticipating the rise in value will lead to a sudden drop amid a host of other pressures. 

It is a valid point, but we should not overlook the properties that make the greenback an attractive option for investors in the first place.

The US dollar is the world’s most traded currency and is involved in around 70 per cent of currency transactions.

Its reserve currency status is also advantageous. With oil-linked currencies like the Norwegian krone and Canadian dollar dropping in value as a result of the oil price crash, investors are once again rallying to the US dollar. 

The coming weeks will be an eventful period for the American currency, and it is worth taking note of its price fluctuations as markets react to Covid-19 and future fiscal measures introduced by the major governments around the world.

Based on what we have seen so far, the pandemic has not dampened investor demand for the dollar. 

Buying while share prices are low 

In the 12 months to March 2020, the FTSE 100 fell by 27.3 per cent.

This statistic takes into account the surge in trades that took place following the 2019 general election in December as investors rallied to UK-based assets, as well as the fallout stemming from Covid-19.

The extent of the recent losses would suggest that there are opportunities for investors seeking to take advantage of low prices to buy individual company stocks or index funds. 

In this case, the challenge is for investors to find companies that have a high price-to-earnings ratio.

Just because the price of one company stock has dropped in reaction to Covid-19 does not mean it will recover.

It could be the case that the stock was already overvalued and has dropped to a more realistic price.

For investors and traders, the impact of Covid-19 on the financial markets will offer important lessons for future volatile scenarios.

For the moment, at least, there are opportunities to alter one’s portfolio depending what the ultimate objective may be – taking advantage of short-term price movements, minimising loss, or acquiring assets for long-term security and returns.  

Giles Coghlan is chief currency analyst at HYCM, an online provider of forex and contracts for difference trading services for both retail and institutional traders