One of the things that are deeply attracting the attention of small and medium investors is the fact that equity markets around the world are rising in the face of the economic crisis that is unfolding in much of the planet. In a way, they are puzzled by this fact, but if things are explained, this fact that financial markets are going through at this precise moment will be understood a little better. Because there are many causes that differ from other recessive periods that have affected these financial assets.
Within this general context, it should be noted that the selective index of Spanish equities has come to be 9.500 point levels. A benchmark that has certainly not been seen for many months and that in any case represents the highest of this year. Precisely when the symptoms of an economic recession are more evident than ever. Where the Ibex 35 has closed the session with slight increases and placed very close to 9.400 points, in a session that has been marked by the doubts generated around Brexit.
In other words, the health of the equity markets is certainly not bad. If not on the contrary, there is hope that it can do moderately well in the coming months. A fact that many of the small and medium investors are not explained since a good part of them have abandoned their positions due to the fear that the financial markets could fall with some violence faced with the fact that a new economic crisis has arrived. Even with values that have appreciated above 5% in recent trading sessions.
Repurchase of shares
One of the facts that explain with great clarity that the stock markets have not collapsed in this new economic scenario is that the companies themselves that are listed on the equity markets are buying back their shares due to the liquidity that financial markets are providing such as consequence of the measures promoted from the European Central Bank (ECB). In some of the cases, they have taken advantage of the drops this summer to create a car portfolio with more competitive prices than before. The main effect is that its potential for revaluation has increased when financial assets are bought at a precise price below the target price of the shares.
This has been a very common practice among the companies that make up the selective index of Spanish equities, the Ibex 35. From banking groups to insurance companies, going through electrical and telecos and with practically no exceptions. This fact has allowed that in all cases the buying pressure has been and is being imposed on the short positions. And as a consequence, the beneficiaries of this investment strategy are the investors themselves who have taken positions in the equity markets. This may explain that the trend of the stock markets is more or less bullish in these trading weeks.
Economic crisis: low interest rates
Another of the causes that explain the evolution of financial equity markets is the move by the BME to lower interest rates in the euro zone. It is a reality that is benefiting the shares have rebounded in this period, as we are seeing, not only in the national stock market but also in those around us. In other words, low interest rates are doubtless beneficial to upward development in equity markets. Although it is at very moderate levels as we can see in each of the trading sessions. But in any case, it is another factor that is helping the buying pressure to impose itself clearly.
While on the other hand, another fact that this trend contributes is that low rates have come to stay for a long time. That is to say, it will not be for a few months, nor even years and this is being discounted by the equity markets. It is a situation that is unprecedented and that of course there have not been other historical periods in which it has developed. And this is therefore taken advantage of by the strong hands in the markets that have decided to take positions in a more aggressive way than usual. Because they think they will be able to make their investments profitable in a more or less reasonable period of time.
Financial markets anticipate
There is a third reason, and no less important, to explain this situation in which the equity markets find themselves. It has to do with the fact that financial markets anticipate what will happen in the coming years. This has always been the case and will continue to be the case in future trading exercises. In this sense, it can indicate that they have already discounted the negative effects of a recessive scenario and it is enough to know that in recent years the stock markets have had negative results, in some cases with percentages that have approached 10%. Well, this theory could indicate that the current rises in the stock market, although moderate, would be interpreted as a way out of this scenario so little desired by small and medium investors.
On the other hand, it should be noted that the stock markets are anticipating what may happen after the economic recession. In a certain way, they would indicate that the crisis in the international economy would have a very limited duration and seeing exit to it. In other words, it would be a sign of optimism that they would be giving to the equity markets and that could be collected by small and medium investors to make profitable their contributions in these high quality financial assets. From this point of view, it would be a clear signal to open positions to make our positions on the stock market profitable.
Cutbacks in the past months
In another vein, it is also necessary to emphasize that although the current financial crisis that the main economies of the world are going through is affecting all sectors and stock indices, It is precisely the banks and insurers that are most sensitive to these falls, as certain investment financial institutions that have needed rescue by the national monetary authorities are in question. These sectors have had falls, in some cases exceeding 5% in just one session, even some international banks have lost practically all their market value.
It is a sector, therefore, exposed to additional risk that may lead to further declines in its price and, from which it is advisable to stay on the sidelines, at least until the storm that is hitting the stock markets at the moment subsides. When it is generally about securities that are characterized by their low volatility and the solidity they present in their stock market evolution, at present they are behaving drastically, with strong oscillations that can reach 10% between their maximum and minimum price and, with massive sales by investors, something unusual in this type of securities, so far.
From this investment approach, it cannot be forgotten that it would be a clear signal to re-enter the equity markets with the aim of profiting from positions. Through one or another investment strategy. From this point of view, it would be a clear signal to open positions to make our positions on the stock market profitable. Although with certain risks that these operations have incorporated.
Trading on the stock market
The Spanish stock market traded in equities a total of 32.487 million euros in September, 7,1% less than the same month of the previous year and 15,9% more than in August, according to data provided by Bolsas y Mercados de España (BME). Where it is shown that the number of negotiations in this analyzed period was 3,07 million, 3,2% more than in September 2018 and 1,1% less than in the previous month. Where it maintains an accumulated market share in the contracting of Spanish securities of 70,5%. The average range in September was 4,87 basis points at the first price level (10,8% better than the next trading venue) and 7,03 basis points with a depth of € 25.000 in the order book (a 30,9% better).
While on the other hand, and according to BME sources, the negotiation in the secondary fixed income market amounted to 24.589 million euros. This figure represents an increase of 29,13% compared to the volume registered in September 2018. Total accumulated contracting in the year reached 269.642 million euros, with a year-on-year growth of 81,7%. The volume admitted to trading in the primary fixed income market was 20.731 million euros, an increase of 29,5% compared to the previous month and a decrease of 25,6% compared to September last year. The outstanding balance grew 2,94% in the year and reached 1,6 billion euros.