Lehman sparks a year of trading opportunities

September 15, 2009


-Angus Rigby is CEO of TD Waterhouse. The opinions expressed are his own.-

Volatility has been the name of the game since Lehman’s collapse, an event which sent shock waves through the global financial markets. The ripple effect on correlated sectors sent share prices on a roller coaster ride of unpredictable fluctuations throughout the year – and yet at the same time this very volatility paved the way for the profit-taking retail trader, if they got their timing right of course.

Volatility, a dirty word for the long term investor, has been the fuel driving traders who successfully shorted on peaks and bought on lows. Even the Bank of England cutting rates by 1.5 percent to 3 – the biggest single cut since 1992 – failed to slow down individual traders. In fact, in many ways, this has been The Year of the Retail Investor.

Things didn’t look too rosy to begin with though. According to a survey we conducted last December to track investor sentiment, confidence in the financial services sector had dropped significantly. It only ranked at 16th place in the list of sectors expected to perform best this year, a sharp contrast from its coveted 2nd position in the same list in 2007.
However, judging from stats that track our customers’ most popular trades, banks have been “Flavour of the Year” this year – accounting for 69 percent of our overall top ten trades.

Banks have always been popular, but they reached new heights in the aftermath of “Black Monday” in September 2008, with Lloyds and RBS the most traded stocks by volume. These two banking giants have accounted for 21 percent of our overall top ten trades in a rocky year of mergers, rescues, rights issues and redundancies.

Barclays, which narrowly escaped a government bailout thanks to a last-minute cash injection from its middle eastern investor, followed closely behind Lloyds and RBS in popularity, holding a fifth (20 percent) of the top ten trades in a year which saw its share price soar more than 500 percent – a good opportunity to profit with a well timed trade.

Overall, our customers’ trading stats reveal that this was a year for buying; with the volume of top ten buys 60 percent higher than the sells. With market volatility since Lehman setting a fast pace traders needed to keep a watchful eye if they were to act on the peaks and troughs, not only in the UK but in other markets too. Many of our customers also cast their gaze across the pond for opportunities with the volume of international trades up 30 percent in the first six months of the year.

Yet, like a domino effect, other industries soon fell victim to the financial crisis. As mortgages dried up, the housing market almost ground to a halt – prompting traders to scoop up cut-price shares in housing developers.

Meanwhile, when the price of oil dropped below $50 a barrel, it caused a further stir among investors and trading in the mining sector accounted for 14% of trading activity over the past year – second only to the banking sector.

But while the economic downturn has taken its toll on many businesses it has also cleared the path for many merger and acquisition opportunities – further fuelling stock market activity. Trading activity for the month after Lehman’s reached a yearly high as speculation for a Lloyds TSB takeover of HBOS was rife.

So now, a year on from Lehman’s it remains to be seen if there really are signs of an economic recovery. The FTSE 100 breaching the 5,000 mark on September 11 is a good start, but it will be the retail investment strategy over the coming months that will be the real indicator of whether stability is here to stay, or just a passing visitor.

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