Global Investing

Buyer beware or beware the buyers?

Hundreds of Bangladeshi investors have rioted on the streets of Dhaka in recent days over stock prices that have plunged nearly 18 percent since the start of the year. Police used batons and tear gas to break up protests that blocked roads around the country’s main stock exchange.

If this sounds familiar, rewind back to 2008 to another part of the Indian subcontinent, when angry investors rampaged through the Karachi Stock Exchange after a series of precipitous share price falls.

In less developed markets, retail investors often bear the brunt of losses as they tend to account for the bulk of total investment rather than institutional players.

Seen to have greater resources to make more informed decisions than private individual investors, institutional investors account for roughly three-quarters of equity investment in the United States. Compare this to the leading emerging economy of China where they account for about half of the market.

The strength of emerging markets over the last two years, coupled with loose credit conditions, has lured many individual investors regardless of whether they possess the required nous for profitable risk-taking.

Market bounce at crucial point

The latest stock market rally is at a crossroads as bear market bounces go, at least those seen in 2008-2009. They usually last on average 30 trading days. 

Today is the 30th trading day since the UK’s FTSE 100 and the pan-European FTSEurofirst 300 hit their lows on March 9. The FTSE 100 has rallied some 15 percent since then, while the FTSEurofirst 300 has surged 22 percent.

Bulls and bears have been at it for sometimes over whether this latest rally is the “real deal” or yet another bear market rally.  Pessimists point to potential shocks in corporate earnings in the latest reporting seasons in the U.S. and Europe, which will give investors a reality check, and the bank stress tests in the United States that are expected to be released on May 4.