Comparing the current crisis to 2008

As global stocks continue their downward spiral in response to Covid-19, many investors are comparing the market fallout from the pandemic to the 2008 financial crisis.

Listen to the full podcast on AdvisorToGo, powered by CIBC.

For Amber Sinha, senior portfolio manager for global equities at CIBC Asset Management, the speed of the drawdown over the past month has been most striking.

The MSCI World Index was down more than 20% this year as of March 31.

“If you want to be a glass-half-full type of person, you could read this as: a quick fall could lead to a quick rebound,” Sinha said in an April 1 interview.

What also makes this crisis different is the sectors affected. Travel, transportation and leisure — those most obviously affected by physical distancing and lockdowns imposed in jurisdictions across the globe — have been hardest hit. The 2008 market collapse was centered around financial services.

Another difference is that governments and central banks had more “firepower in terms of being able to reduce interest rates” in 2008, Sinha said. With rates already low, global leaders and banks will “have to resort to other measures” to boost the economy.

“We’ve already seen a lot of stimulus being talked about, and a lot of asset purchases being done by central banks,” he said. “But interest rates being reduced: that’s not going to help us as much this time around as it did the last.”

Meanwhile, there is a key similarity between the current crisis and 2008, he said: debt.

“Last time around, it was debt in the financial services sector, debt on consumer balance sheets,” said Sinha.

“This time around, we’ve seen a healthier financial system, a healthier consumer balance sheet. But there is a lot of debt on the government balance sheets and corporate balance sheets, […] and that is something that really puts pressure on the system in a crisis.”

While it’s still early in the crisis, there are a few silver linings, said Sinha, who manages the CIBC European Equity Fund and CIBC Asia Pacific Fund.

Now that the first part of the crisis is behind us, there’s “forced selling in the market,” which can create opportunities.

“Whether it’s portfolios of companies that have to make margin calls, or have to sell stocks that they couldn’t otherwise sell but they have to sell for other reasons — maintaining liquidity, maintaining cash — I think that is the stage of the market where you actually see high-quality stocks get sold as much as the market, sometimes even more,” he said.

Investors and portfolio managers who do their due diligence may “be able to buy good-quality stocks at attractive valuations,” he said.

Aerospace is one sector that has seen “a lot of stress,” potentially creating buying opportunities.

“[There] are some unique situations where the stocks have gone down more than they should, and for a patient, long-term investor, I think aerospace would be a good place to look,” he said.

Also, restaurants, food services and facilities maintenance companies have come under pressure as governments respond to the pandemic.

“Essentially, the economy is in a lockdown in large parts of the world,” said Sinha. “If we assume that we do go back to our offices in a few months, then a lot of stocks [that] have seen pressure for that reason will eventually come back in a good way.”

This article is part of the AdvisorToGo program, powered by CIBC. It was written without input from the sponsor.