Tricky timing: re-entry and relaxation
Luxembourg, 16 April 2020 – Politicians are currently facing the same questions that investors are pondering: When is the right time to return to more familiar ground after a panicky exit? When should pandemic-induced restrictions be relaxed, when should investors re-enter the market after selling? “From an analytical point of view, the answer can only be: As soon as possible”, said Swen Köster, Senior Vice President at Moventum S.C.A.
In making those decisions, politicians have a much harder time than the stock market. “They have to weigh many more factors against each other”, Köster explained. “In addition, the consequences of wrong decisions are much more dramatic, because they not only concern money, but matters of life and health”. Nevertheless, the experience gained in the financial markets may also be a guideline for politicians: For the stock market, there is a history in which, for a variety of reasons, prices have plummeted. “And each time, it turned out that those who had exited the market and then missed the time to re-enter encountered worse results than those who either got back in quickly or did not exit at all”, said Köster.
The pronounced stock market slump triggered by the pandemic has increased the demand for liquidity, particularly among institutional investors. Many positions were sold, cash was king. Those who got out in time were able to reduce their losses. “On the other hand, the Dax has already returned gone up some 27 percent since its low in March”, Köster added.
Historically, many of the best days on the stock market are following directly after days of sharp declines. For investors this often means: Those who did not exit in the first place frequently recovered their losses faster than those who exited earlier, but then missed the right time to get back in.
“In this crash, however, many private investors reacted correctly”, said Köster. One the one hand this was caused by the speed with which prices fell. Countless private investors were initially busy making basic provisions for themselves and their families. Handling the investment of money was only an afterthought. By that time, share prices had already so far retracted that a sale would have been pointless. “It was also due to the fact, however, that many of them had been advised correctly and the advisors made sure that stocks were not sold in panic”, Köster pointed out. On the contrary: “We have noticed quite a number of follow-up investments during the crash. This clearly demonstrates that financial advisors are doing a very good job.” Therefore, those who did not exit the market did not have to find the right time to get back in.
For politicians, however, non-action is only a guide to a very limited extent. They must consider other criteria of provision and safety. What may possibly be the same, however: The faster it was possible to return to normal operations, the better the results were historically.
Moventum Asset Management S.A. (Moventum AM) is a wholly-owned subsidiary of Moventum S.C.A. The management company, in which Moventum’s asset management expertise has been concentrated since the beginning of 2019, manages Moventum’s own funds and individual mandates as part of its asset management portfolios.
As an independent financial service partner, Moventum S.C.A. is specifically addressing financial service providers such as financial advisors, asset managers, institutional investors and NGOs. Its services in asset management and asset building include a web-based securities investment platform focusing on funds, relieving financial advisors of administrative tasks, and integrating custody and account management for individual investors. Investment management tools, regulatory-compliant reporting and individual securities services are also part of the full-service range. Standardised fund asset management service with a sustainable, successful track record for the relevant risk/reward profiles complements the offering. The Moventum Group also enables institutional investors to outsource securities processing in its entirety. The MoventumOffice investment platform offers access to more than 9,000 investment products including funds and ETFs from more than 400 investment firms, including the use of analysis, reporting and support tools.
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