Very few equity market stocks are saving themselves from this veritable drain on the stock markets. With a collapse never known in the history of the stock market and where the worst is in the fact that can happen from now on. Due to the fact that a good part of financial analysts think that the markets have not yet reached the bottom and therefore can be developed new bearish jerks In the next weeks. At least until the curve of infected by the coronavirus does not fall in its levels. And this may happen in a month or two, but not in the short term.
On the other hand, we cannot forget that investors cannot opt for bearish positions in the equity markets when sales on credit are suspended. In this way, their movements are more limited and to protect themselves the only resource they have at the moment are investment funds linked to volatility and more specifically to VIX, the so-called fear index that is at the highest levels in its history. Although it may be a bit late to take positions in this risky financial asset. It should have been done at the precise moment when equity markets began to plummet.
From this desperate scenario that private investment arises, there are very few strategies that can be applied these days. Unless you opt for liquidity in the savings account to take advantage of the prices so low with which the securities will be traded and which represent a historic opportunity that small and medium investors have never enjoyed. This is the positive aspect of the current state of equity markets around the world, not just ours. It is no longer about losing money, but about making it as little as possible.
Equity markets: analysis
However, not all opinions are so highly negative. Because in effect, the Bankinter analysis department considers that the recovery of the equity markets may take place in the month of April. They do not think that the value of much of the shares is worth right now 35% less than just a few weeks ago, as it is discounted in the main stock market indices. Rather, on the contrary, they are financial assets that will tend to recover, at least over long periods of permanence. In any case, they warn, the movements and actions of small and medium investors should not be governed by panic since it is a bad advisor in these very special cases.
While on the other hand, it cannot be forgotten that this fact is a specific issue and will be solved in more or less time. In this sense, also the economic recession will have an expiration date which can be from just a few months or a quarter to a whole course. As a consequence, long-term investments will be able to succeed in this complex scenario that we are going through this year. Where in the end the dreaded black swan appeared, although with a protagonist that no one counted on.
Monetary funds as a refuge
Another option that small and medium investors have is to go to monetary investment funds. Where making money will not be achieved, but at least it will serve not to lose it. Something is something in the current landscape in the complicated world of money. Although it has the disadvantage that you will have to bear some commissions that can make this financial product more expensive between 1% and 2% on invested capital. From this point of view, it is a less satisfactory investment strategy than liquidity in the savings account of banks. In any case, we must assume that these are not times to look for products with which to make the savings profitable, but on the contrary, they must be protected above other more aggressive considerations.
From now on, tough days await us in all equity markets. But unlike technical economic crises, in this one there are defined deadlines that can help channel these operations. Not surprisingly, and unlike others, the stock market falls have developed in a very few weeks and not in longer periods of time. This fact has produced that small and medium investors have had less reaction power to execute their sales at the desired price. To the point that many of them have become hooked on their open positions in the financial markets. With the effects that we all know that have occurred.
Bags will remain open
Members of the FESE, which comprises exchanges across Europe, are not immune to the effects unleashed by the rapid spread of Covid-19 and its impact on the economic environment. While this situation is not without its challenges for exchanges, it is crucial that markets remain open. Regulated equity markets fulfill a social and economic function that must prevail in times of uncertainty. Stock exchanges play a fundamental role in the formation of prices, transparency and liquidity. Preventing them from fulfilling this function would have a huge impact not only on the economy but also on society.
These features have been tested in the past; For example, during the financial crisis, when other sources of liquidity were exhausted, the stock markets continued to function successfully. This situation is no different and markets must remain operational to maintain confidence. The guiding principles of FESE members remain transparency and objectivity, especially in these uncertain times.
European exchanges will remain and must remain open at all times to ensure security, integrity and fairness in a safe and transparent manner.
1. Technically and operationally: the markets continue to function in an orderly and transparent manner despite the extreme trading conditions caused by the Covid-19 crisis. Installed controls and circuit breakers operate normally and with the flexibility to meet market demand. Contingency plans have been activated that will ensure that everything works as designed, even in the context of 'work from home' protocols.
2. Orderly operation of financial markets: the constant flow of news gives rise to a continuous review of investors' valuations of securities and generates the need to rebalance portfolios dynamically. The current crisis is expected to continue to generate both a negative news flow, for example closure decisions, and a positive news flow, for example the impact of major government support plans. Investors must adapt to ever-changing economic circumstances, and the controls in place at trading locations are even more important in such volatile market conditions, as circuit breakers allow investors to absorb new information. More generally, risk pricing must remain transparent, accessible and reliable across asset classes so investors can value portfolios and make informed investment and hedging decisions in these volatile conditions.
3. Contractually: the closing of the markets would trigger all kinds of pro-cyclical contractual clauses in a wide range of financing and even operational contracts. These potential and overt consequences could lead to an unpredictable series of defaults. Derivatives contracts in particular are considered reliable with observable reference prices that allow for an orderly expiration and settlement process. These instruments are often used as proxy or hedging instruments for many related OTC markets, for example, stock markets. credit. The closure of the LIT markets would likely have a material impact on the functioning of a wide range of OTC markets, as the elimination of the main hedging instruments would make broader risk management extremely difficult.
4. Regulatory and litigation consequences, as well as effects on smaller investors: the closure of the markets would cause the massive expansion of all types of bilateral agreements outside the market, outside of transparent trading locations and without the protections that prevail in those locations. All investors would be affected by such a situation, but small investors would be hardest hit by a shift to such opaque arrangements between professional investors that they could only adjust their positions upon reopening of the benchmark trading locations.
Closing markets would not change the underlying cause of market volatility, remove transparency from investor sentiment, and reduce investor access to your money; All of this would exacerbate current market anxiety and lead to negative returns for investors.