29 Jun 2020

How to manage securities during a crisis: GSOM the state of the securities market was discussed at GSOM

The second online meeting of MBA programs alumni in the format of a club of practitioners was held at the Graduate School of Management of St. Petersburg University (GSOM SPbU). This time, representatives of companies associated with financial markets discussed the prospects and risks of financial markets, the main trends in a pandemic.


The COVID-19 pandemic has affected many sectors of the economy. So at a previous meeting, alumni and students of the EMBA and MBA programs discussed changes in retail. The financial market also dipped somewhat during the pandemic.


“For investors, the first half of 2020 will be remembered not only for the sharp decline in financial markets caused by the influence of quarantine on the global economy, but also for their rapid recovery to almost the beginning of the year, thanks to the unprecedented support of governments and central banks,” said Fedor Sannikov, CFA, Manager Director of the Investment Consulting Directorate for Large Private Capital, VTB Group. The speaker noted that during periods of sharp fluctuations in stock markets, it is worth following the established rules:


  • “Diversification. It is better not to invest more than 5% of the investor’s total portfolio in one company. Imagine that you bought a company’s shares at 30% of the portfolio, and their price fell by half. In this case, only this investment will bring 15% of unrealized loss on the portfolio. In the case of investments of 5% per company under this scenario, the unrealized loss on the portfolio will be only 2.5%.
  • The correlation of global stock markets is quite high, with coefficients reaching 0.7-0.8. This means that, for example, if the American stock market is declining, other markets are likely to decline, and vice versa. Therefore, the decisive factor for portfolio risk is not the number of stock markets or specific companies in which they invest, but the share of all shares in the portfolio compared to less risky instruments (high-quality bonds, deposits). For a conservative investor, the proportion of shares in the portfolio rarely exceeds 15%.
  • You should not buy cheap stocks without understanding the reasons for such a price. For further analysis, before buying, write down 3-6 points why you want to buy this particular business.
  • Without an understanding of the processes taking place in a particular company, it is better for an investor to fill part of his portfolio with shares not through the purchase of individual companies, but through Exchange (ETFs) and Mutual Funds. ”


Experts said that despite the attitude to the crisis as a temporary situation, after which the market will rise again, this is not always true for the securities market. The market situation changed even before the crisis associated with COVID-19, when the OPEC + deal did not take place, and the price of oil fell.


“Any crisis is always an escape into quality. People are afraid to buy risky assets, ” said Sergey Lyalin, Ph.D., CEO, Cbonds.ru, a 2018 EMBA alumnus. Speaking about the trends of the bond market, the speaker emphasized that activity in the primary securities market did not stop. In January 2019 - May 2020, the volume of placement of new corporate bonds was larger (649 billion rubles) than for the same period last year (621 billion rubles).


“We need to get used to the new realities in which the yield on bonds has dropped below 10%. If 10 years ago these were double digits, now the index has dropped below. Consequently, double-digit returns become luxury. Therefore, as the yield on bonds falls, it is worth taking a closer look at shares with high dividend yield, for example, in the metallurgical industry, ” emphasized Sergey Lyalin.


In addition, the crisis affected the general uncertainty of the market and complicated the analysis of transactions. “The traditional methods of fundamental and technical analysis no longer work in their classical reading. The crisis forces us to reconsider our views on the development of the global financial system. Unprecedented emission of money, the threat of inflation, high volatility, negative yields on a number of government bonds, the development of high-frequency and algorithmic trading are new challenges for investors. We are also forced to revise approaches to the valuation of securities, the use of multipliers. In fact, the growth of the entire American stock market has been provided recently by several major technology companies, which creates additional risks, ”said Nikita Demidov, Ph.D., managing corporate and brokerage business in St. Petersburg, BCS Broker, an alumnus of EMBA 2018.


A meeting the financial market representatives was held as part of the Club of Practices for alumni and students of MBA / EMBA programs. The moderator was Tatyana Garanina, Ph.D., Associate Professor, School of Finance and Accounting, University of Vaasa, Finland.