Five Investing Perspectives for the Coronavirus Crisis

30 March 2020

4 min read

Kent Hargis, PhD| Chief Investment Officer—Strategic Core Equities; Portfolio Manager—Global Low Carbon Strategy

Sammy Suzuki, CFA| Head—Emerging Markets Equities

Christopher W. Marx| Global Head—Equity Business Development

The COVID-19 pandemic has prompted a global shutdown that has rattled markets in ways unseen in over a decade. But even amid the extreme uncertainty, equity investors can follow several principles to navigate the challenging and changing times ahead:

Think out of the box: Imagine unlikely scenarios and try to connect the dots in ways that may not be immediately obvious. The global financial crisis of 2008 torpedoed numerous tenets of conventional wisdom. Remember, “Housing prices don’t go down”? Or, “Lehman Brothers is too big to fail”? Or, “GM will never be downgraded to below-investment-grade status”? In today’s environment, the unthinkable can become reality. Just a few weeks ago, who could imagine that air traffic would be almost completely grounded, or major cities like New York, London or San Francisco might be placed under lockdown? Don’t dismiss a question just because it’s never happened before. Similarly, don’t rely on past precedent to determine what types of stocks will provide stability in an allocation today.
Worry about the short-term path to recovery: Eventually, societies will emerge from this extreme uncertainty and life will settle into a new normal. However, it will probably take a while, and the global economy is likely to experience a deep contraction in the meantime. Stress-testing a company’s ability to weather various scenarios is critical to stock selection. Balance-sheet strength and cash-flow continuity in a severe downturn are two key indicators that can help identify companies that can survive. Some companies may report a big hit on the income statement as the economy contracts, but have strong balance sheets to see them through the trough and will be profitable when the situation normalizes.
Don’t lose sight of the long-term horizon: Short-term results are certain to be ugly at most companies, and investors may overreact. That’s to be expected: it’s human nature to focus on immediate stress rather than the horizon. But the valuations of companies that can pull through will depend on their cash flows postcrisis. Investors should try to forecast through the short term to identify equities that have been mis-priced by short-term market jitters. In some cases, crisis conditions create fire-sale prices for high-quality companies with the right stuff to perform well over the long term.
Imagine the post-coronavirus world: This isn’t easy to do when countries are still coping with a growing human tragedy and facing massive economic fallout. But investors must think today about what type of trends will reshape the landscape in the future. Some businesses won’t survive the crisis. Other business models will never be the same and may be permanently impaired, such as cruise lines. Companies may rethink business travel, prompting permanent changes in corporate behavior and spending. On the other hand, some companies will emerge as winners. Obvious examples include remote work applications like Zoom Video Communications and Citrix Systems, which are already becoming more routine and will become a more permanent fixture of normal business activity. But other less apparent examples will emerge over time, too. Some companies are well positioned to address entirely new business opportunities—that’s why out-of-the-box thinking is so crucial. What role will Amazon, FedEx and other businesses, like online educators, play in these challenging times, and how may their role in society change in the long term?
Be humble about what we know: Just as in the global financial crisis, governments are likely to adopt policies that seem unimaginable, and in many cases capricious. Investors should be humble about what they do know and what they don’t. Decision-making based on what policymakers or others may do is not investing—it’s gambling. Try to tune out the noise emanating from popular financial media and social media; instead, focus on equity fundamentals that can be understood, such as microeconomics, business models and cash flows.

Gaining perspective is difficult during a global emergency. It’s hard to ignore the endless flow of dramatic news, especially when markets are convulsing. But sometimes, it’s important to disconnect from the internet, take a deep breath and try to rise above the immediate chaos to visualize the day after.

The coronavirus health crisis is an unprecedented shock to modern society and the global economy. We’re all experiencing a historic dislocation that has touched the lives of every individual and unhinged markets worldwide. But investors can regain their footing by sticking to several strategic guidelines during a time of extreme uncertainty. Creative thinking, a sober assessment of the short-term challenges, and a focus on long-term business fundamentals and valuations all figure as keys to identifying the quality companies poised to survive through the pandemic and thrive in the new postcrisis reality.

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams. Views are subject to revision over time.

About the Authors

Kent Hargis, PhD

Kent Hargis is the Chief Investment Officer of Strategic Core Equities. He created the Strategic Core platform and has been managing the Global, International and US Strategic Core portfolios since their inception in 2011. Hargis has also been Portfolio Manager for the Global Low Carbon Strategy Portfolio since 2022. Previously, he managed the Emerging Portfolio from 2015 through 2023. Hargis was global head of quantitative research for Equities from 2009 through 2014, with responsibility for directing research and the application of risk and return models across the firm’s equity portfolios. He joined AB in 2003 as a senior quantitative strategist. Prior to that, Hargis was chief portfolio strategist for global emerging markets at Goldman Sachs. From 1995 through 1998, he was assistant professor of international finance in the graduate program at the University of South Carolina, where he published extensively on various international investment topics. Hargis holds a PhD in economics from the University of Illinois, where his research focused on international finance, econometrics and emerging financial markets. Location: New York

Sammy Suzuki, CFA

Sammy Suzuki is Head of Emerging Markets Equities, responsible for overseeing AB’s emerging-markets equity business and instrumental in the formation and shaping of AB’s Emerging Markets Equity platform. He was also a key architect of the Strategic Core platform and has managed the Emerging Markets Portfolio since its inception in 2012, and the Global, International and US portfolios from 2015 to 2023. Suzuki has managed portfolios since 2004. From 2010 to 2012, he also held the role of director of Fundamental Value Research, where he managed 50 fundamental analysts globally. Prior to managing portfolios, Suzuki spent a decade as a research analyst. He joined AB in 1994 as a research associate, first covering the capital equipment industry, followed by the technology and global automotive industries. Before joining the firm, Suzuki was a consultant at Bain & Company. He holds both a BSE (magna cum laude) in materials engineering from the School of Engineering and Applied Science, and a BS (magna cum laude) in finance from the Wharton School at the University of Pennsylvania. Suzuki is a CFA charterholder and was previously a member of the Board of the CFA Society New York. He currently serves on the Board of the Association of Asian American Investment Managers. Location: New York

Christopher W. Marx

Christopher W. Marx is Senior Vice President and Global Head of Equity Business Development. He is responsible for overseeing the firm's team of equity investment strategists and product managers, setting strategic priorities and goals for the global Equities business, developing new products, and engaging with clients to represent market views and investment strategies of the firm. Previously, Marx was a senior investment strategist and a portfolio manager of Equities, and in 2011 he cofounded the Global, International and US Strategic Core Equity portfolios with Kent Hargis. He joined the firm in 1997 as a research analyst covering a variety of industries both domestically and internationally, including chemicals, metals, retail and consumer staples. Marx became part of the portfolio-management team in 2004. Prior to joining the firm, he spent six years as a consultant for Deloitte & Touche and Boston Consulting Group. Marx holds a BA in economics from Harvard University and an MBA from the Stanford Graduate School of Business. Location: New York

Five Investing Perspectives for the Coronavirus Crisis

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