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April week 4

Debt performance underperforming stocks, issuance stops and recovery risk rises

Benefits Report: Cache liquidity preferences by investors lead the asset liquidation process

• Investment markets fail to maintain the fair values ​​of assets in a closed state
• The trend towards monetisation and reserving cash for reinvestment There are risks to global economic performance

The repercussions of the outbreak of the Corona virus which affected all short, medium and long-term investment decisions, led to declines on various commercial and industrial activities. This pandemic would definitely not result in a shift towards "cash" liquidity, topping the list of safe havens.

The weekly report of Al Mazaya Holding Company indicated that the monetisation addresses are driven by investor decisions in the financial markets since the beginning of the pandemic, recording a number of global exchanges losses exceeding 30%. The world is moving to mitigate the repercussions of the Corona virus on the financial and economic performance by moving towards liquefaction operations and maintaining its output of criticism.

The advantages report emphasised that the indicators are recording a further decline in prices, as investors who rely on leverage face demands to pay debts by liquidating their investment portfolios, which increases the selling pressure. The evaluation of the performance by American investment funds confirms that this category is moving towards recording liquidity at rates that were not present for a long time. The monthly survey of approximately 200 global fund managers in April showed that liquidity jumped from 5.1% to 5.9%, which reflects the extent of cash retention amidst the possibility of recession.

The report highlighted the increase in the severity of financial and economic fluctuations and the accompanying deterioration in the values ​​of circulating investment liquidity, pushing asset prices to decline sharply. The global recession and the collapse of oil markets doubled the status quo in spite of the central banks' purchases of the corporate bonds.

The report pointed that at the weaker level of liquidity, global mergers and acquisitions markets face real challenges, as markets are currently free of any deals so that the governments of the countries of the world continue to close large sectors of their economies. It is noteworthy that the merger deals have fallen by 33% since the beginning of this year, recording at $762 billion and that the total value of acquisitions and mergers during the year 2019 amounted to $ 3.9 trillion, focused on the pharmaceutical, industry, energy and banking sectors.

In the framework, the advantages report revealed that the trends of maintaining liquidity by investors at the present time will directly affect the values ​​and sizes of sales and purchase deals with real estate markets, which will experience reductions as a result of the decline in the sector's sales, and reduction in marketing and construction operations of the majority of companies.

On the other hand, the repercussions of the spread of the epidemic led to the cancellation of all promotional activities and real estate exhibitions regionally and worldwide, leading to the loss of many customers and deals and producing great difficulties in marketing operations, as customers prefer to postpone purchases, which would increase competition between Developers who will tend to offer greater payment facilities and pricing.

In light of noticeable losses recorded in the markets of risky assets and bonds, investors around the world prefer to keep the "cache,” which could potentially cause two things. The first is a significant decrease in the values ​​of investment liquidity, and the second is a great difficulty in using these funds to continue liquidating the assets of safe havens, including gold and bonds.

The benefits report indicated that liquidity disturbances and their effects will not stop there, because the biggest challenge lies in the debt markets, which are witnessing more values ​​and tightness in front of new issues, while emerging market countries will have to pay debts estimated at $ 34 billion during the next 12 months. This will be extremely difficult for the government, especially if they are not able to provide sufficient reserves to cover their international obligations in light of the scarcity of dollar funding.

The report added that, despite the results of direct and indirect investments around the world, the level of risks and values ​​of opportunities are almost equal, while the desire to invest or maintain that list without liquidation depends on expertise, tools and the ability to bear the continued decline in the values ​​of all assets.

The report highlights the risks in maintaining liquidity for reinvestment again. There are a few risks to economic performance, away from liquidation with the aim of final exit and maintaining cash for long periods, which will reflect negatively on investment climates and job markets in the medium and long term.