The differently faceted approach on stock market risks

The stock market in 2001-2007 timeframe was marked by a high risk appetite of investors, whereas this year we will witness a heightened risk aversion in making long-term stock acquisitions in the midst of massive depreciations triggered by the global financial crisis and severe economic outlook for Romania.

The bearish trend started in H2, 2008

After the all-time lows registered in October 2008, investors who remained actively involved in the market are now more prudent on where they invest the capital.

“In the second half of last year, investors understood the actual extent of the global financial crisis and the fact that the ‘claws’ of the crisis would soon engulf the Romanian economy and of local companies respectively”, Mirela Maxim, director of Capital Invest’s Bucharest branch, told Wall-Street.

Aside from the excessive prudence of buyers, the end of 2008 was marked by record low prices registered by the stocks.

“The narrow volumes in the past few months can be explained through the fact that no more stocks were available at sale, but there were no more buyers either. I have seen a wide spread of shares that used to be liquid like financial investment companies, which can only emphasize the drowsiness at that time”, said Paul Brendea, financial analyst at Prime Transaction.

The October’s fallouts have considerably shrunk the portfolios of many investors, who preferred to wait for the market’s recovery, rather than seeing their portfolios sinking 60-70%, as Marius Pandele, head of research at Vanguard notes.

At the moment, there are practically two types of investors: investors who are sure that the stocks are very much underpriced, that we will be marginally stricken by the crisis and that by yearend the international equity markets will recover, while the second category includes investors who are convinced that the Romanian economy would collapse, a part of the issuers would have to deal with severe problems and that the global recession would last longer”, Pandele stressed.

Prudence: the word on all investors’ lips

“Risk appetite of investors will surely narrow this year. It is a trend that led to a reduction of the number of active investors in the equity market and to an increase of those who chose banking deposits”, Marius Pandele (photo) added.

If interests remains high, then the risk appetite will normally be lowered, adding the fact that the risks in the equity market are much higher than they used to be, he added.

Investors in the capital market will be satisfied with lower profit margins , they will response promptly to market’s bearish moments, they will hesitate to go on purchase, normal things actually, but things that seemed out of the picture in 2007, said Brendea.

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