If investors have not dumped their positions so far, they have no choice but to endure the downpour. But at these levels it is no longer a matter of changing investment strategy. Just vary the term of stay, going from short to medium and especially long term. As a vaccine to prevent us from having a significant loss in the securities portfolio. Where it is becoming clear that there are no refuge values in equity markets. All of them are under unprecedented selling pressure in recent decades.
Within this bleak outlook, the majority of small and medium investors are wondering what they should do at this precise moment. The panic about coronavirus it has moved even more strongly into the international equity markets. The selective of the national stock market has depreciated around 35% and is one of the indices most affected by this new scenario. While the United States stock markets have further limited their losses, with depreciations of 27%. But the fear among stock users is that things could get worse from now on.
In any case, all financial experts agree on one aspect: not making decisions that we can regret it in a few months. In any case, the most direct effect that investors will feel is the greater lack of liquidity as a result of not closing their positions on the stock market. On the other hand, it cannot be ruled out that the most aggressive investors choose the decision to open positions from a riskier and very aggressive strategy. Therefore, there are many dilemmas that open from now on. In what constitutes a very complex response to be taken by users.
Short sales are suspended
The National Securities Market Commission (CNMV) announced this Thursday that during the day of this Friday, short sales on shares of 69 companies will be prohibited after the falls shown in the stock markets due to the serious incidence of the pandemic of the new coronavirus. Specifically, the markets supervisor reported late on Thursday that this decision will affect all liquid shares whose price has fallen by more than 10% during the session this Thursday and all illiquid stocks that have registered a fall of more than 20%.
The adopted resolution has come into force with immediate effect from its publication on the CNMV website. The decision has been taken in accordance with Article 23 of Regulation (EU) 236/2012 of the European Parliament and of the Council, which empowers the competent national authorities to temporarily restrict short selling in the event of a significant drop in its price. .
The agreement has been taken taking into account the evolution of the stock markets in the context of the situation created by the COVID-19 virus, which have registered extraordinary falls in the prices of European shares (-14,06% on the IBEX 35) with numerous values exceeding the variation percentages included in the aforementioned Regulation (EU) 236/2012 and its implementing regulations. Likewise, the risk that in the next few days there may be disorderly price movements in the European stock market, including the Spanish. Short sales are those defined in article 2.1.b of the aforementioned Regulation (EU) 236/2012.
Precisely in these days, many of the national equity values have been attacked by credit sales and that to some extent have been responsible for the serious falls of these weeks, and especially those of this Thursday that was left almost 15%.
Stock market panic: wait and wait
The most prudent rule recommended by financial experts is that you have to endure the storm that is being experienced in the equity markets. At this point we have no choice but to assume this reality and wait for the scenario to change in the fastest time possible. In this sense, one of the tips for people who are going to sell their shares is that they are not formalized "at market price". Because they can be executed at a very unfavorable price for the interests of stock users. The reason is due to the great volatility that equity markets are experiencing. With oscillations that reach up to 10% in the same trading session.
On the other hand, you have to move away from short terms where you always have everything to lose due to the low prices of all shares on the stock market. Therefore, the solution goes through change investment strategy to direct it to several years seen. But this may not be possible for some investors for different reasons: lack of liquidity, urgent payments, debts or any other domestic incident. In these cases, the solution will be much more complex since there may be no other choice but to perform a bad operation from now on.
Investors with liquidity
It is much better for users who are fully liquid in their savings account. Because they can be found with real business opportunities by offering the stock prices prices that can be considered as really attractive. With discounts compared to a few weeks ago of between 30% and 40%. Santander trades slightly above the double euro, Telefónica around 4 euros and Repsol at 7 euros, to name just a few of the most relevant examples.
In this case, the profitability of the investments is practically assured. Perhaps not in the short term, but in the medium and especially long term. To the point that in some cases it can be bent or even triple profitability of investments. As a good part of the analysts in the equity markets say, these operations should not be approached as speculation, but as investment. After all, it is the true meaning of these movements in the capital markets. And in this sense, it is a good opportunity to buy shares on the stock market and despite the fact that they may continue to fall in the coming days or weeks.
Has the capitulation arrived?
One of the keys to establishing the strategy to follow is knowing the moment of capitulation. Because it will be the inflection point in the equity markets and when stock prices start to take off. It seems that we are already very close to these levels or we may not have to wait long. In this general context, tourist securities are trading at incredible prices, discounting the worst-case scenario. Therefore, they could also be the ones with the greatest recovery and with a potential for revaluation that is one of the most striking in recent decades.
While on the other hand, the moment of capitalization can be accompanied by a drop in prices of up to 10%. As a final prologue to one of the biggest falls in the history of equity markets around the world. And that can take the Ibex 35 to levels very close to 5000 points, that is, with a 50% correction on prices at the end of February. Which is the money that small and medium investors who have lost positions in these hectic days for all citizens will have lost. Through an unprecedented scenario and that no one had counted on just a few weeks ago.
The risk of reverse products
The best investment strategy to take advantage of this brutally bearish scenario is inverse products. Both in the purchase and sale of shares on the stock market, as in other financial models: investment funds, CFDs, so warrants, among some of the most relevant. But with a serious risk reaching these levels in the quotes because a change in trend can occur at any other time. In this sense, it is very risky to take positions in this product because in the end the effects may be unwanted. If not, on the contrary, it may in the end generate more problems than advantages.
It cannot be forgotten that inverse products are an investment format that enhances volatility in financial assets. And therefore you can earn a lot of money in each of the operations, although you can also leave a lot of euros in the equity markets. With margins that range between 10% and 20% in a single trading session and that are only reserved for investors with a very aggressive profile and especially where speculation prevails compared to other investment strategies. It is precisely these days that many of the national equities have been attacked by sales on credit.