Coles, Telstra, Apple: where to invest during COVID-19

Following the outbreak of SARS and Ebola, markets dipped but quickly recovered, marching onwards and upwards to the dizzying heights of the past year. Will coronavirus be any different?

Coronavirus has shaken markets this past week, sparking talk of an impending recession in the US. The S&P 500 plunged about 9% last week, its biggest weekly fall since the 2008 global financial crisis.

But this is still shy of the 20% correction it would take to be classified a bear market, which would mark the end of the 10-year stock run.

Nonetheless, central banks here and abroad have jumped into action. The RBA cut 25 basis points, taking the cash rate to a record low of 0.5%, while the US Fed has gone all in with a 50 basis point cut, taking the US cash rate to a target range of 1-1.25%.

Investment experts are as spooked as the markets they invest in.

"The globalisation of the coronavirus is a game-changer," says Paul O'Connor from Janus Henderson.

"The recognition that the virus is globalising has extinguished hopes of a v-shaped recovery in global growth and rekindled fears of recession."

The only certainty here is uncertainty.

"What is clear, is the potential supply and demand shock that may be about to sweep the global economy," says Jeffrey Halley from OANDA.

"That likely justifies the equity sell-off of this week with a harsh reassessment of delusional valuations in some cases, and a central bank growth forever in others."

And there are fund managers that say 2020 can still be a year of growth.

"We maintain our view that 2020 growth will not be completely derailed, but the longer the outbreak lasts and the more it spreads, the bigger the risk to overall growth," says Esty Dwek from Natixis Investment Managers Solutions.

"We had reduced our allocation to equities in anticipation of hgher volatility and we believe this is likely to continue. We also believe that short-term downside risks persist, as earlier market resilience now appears broken."

It's important to acknowledge that a correction sometime soon was likely, even before coronavirus took hold. Global markets have been at record highs, driven by valuations many believe are stretched.

Beacons of hope

Not all companies are feeling the heat. Unlike computer viruses, coronavirus can't be transmitted through cyberspace.

"Apple, Microsoft, Alibaba, and Google are significantly into cloud and data, and that forms the distant delivery of goods and services," says Alex Pollak of Loftus Peak.

"We see these companies as part of the solution. You don't want to mix people with pandemics, and these companies take people out of much of the equation, and in this way they're part of the solution.

"In the case of Tencent, people stay home and play games, so quarantines don't hurt it. And Alibaba is part of the distance solution with respect to commerce."

Pollak says his Chinese exposures copped it in the beginning, but have come out of it faster because the recovery rate inside of China is starting to appreciate.

Anton Tagliaferro from IML Investors warns that the stocks that have been most optimistically valued by speculators are the same ones most at risk from coronavirus.

"Our portfolios are tilted towards companies which we believe are relatively immune to the consequences of the impact of the virus on economic activity - here we are talking about companies like Telstra, Coles, Ausnet and Sonic. Many of these stocks also offer attractive sustainable dividends," he says.

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