The FINANCIAL — In the past year, the world has witnessed a paradigm shift as Retail Investors turned towards alternative markets to hedge against market uncertainties.
In spite of the astronomic job losses and decline in productive activity that shared striking similarities with the global recession of the 1930’s, research by scientists at Paderborn University showed that in 2020, stock indices in certain industries still recorded significant growth. Quite notably, a lot of changes were observed in global investment trends as a fallout of the covid-19 economic crisis, such as increased trading intensity among retail investors by 13.9%.
Social Media Plays a Major Role
One of the most significant trends that emerged as a fall out of the recession was the use of social media to drive changes in real-world financial markets.
As the first year of the COVID-19 pandemic went by, lockdown measures kept people at home with nothing much to do but socialize through their digital devices. Online chat rooms quickly became dominated by business discussions. It wasn’t long before groups of daring Retail investors leveraged on this trend to embark on collective efforts to influence the markets.
A typical example of this was the case of Gamestop. A group of investors on a forum called r/WallstreetBets took on institutional investors who had decided to short the stocks of Gamestop. This spectacular move sent shockwaves through Wall Streets as the stock price of Gamestop rose astronomically, leading many top hedge funds and Investment banks who shorted the stock to rack up significant losses.
In the same fashion, community-driven retail investors successfully pushed the stocks of AMC Entertainment through the roof by more than 1100%.
Credit: Austin Distel via Unsplash
Alternative Investments — Debt-based Instruments
Seeking portfolio diversification, retail investors turn attention towards alternative markets and new classes of investment assets in a bid to hedge against market volatility and uncertainties.
Post-pandemic economic recovery has seen fractional loan investment become an increasingly popular choice among retail investors. Mintos, one of the most prominent loan investment platformsin Europe, has attracted new users with some endearing features like a fast app-based access and low investment threshold. It has provided investors the opportunity to earn passive income and offset the deteriorating effects of inflation.
The biggest advantage of debt-based investments were observed to be the significantly higher returns and less volatility in comparison to traditional passive income instruments. Prominent Author and finance analyst, Dr. Oliver Everling, explained the growing relevance of alternative investment vehicles. In a recent interview, he said, “The central bank policy of cheap money has created an almost irreversible debt situation for the national economies to historically unprecedented heights. Hence, private investors are forced to discover and use alternative asset classes.
He, however, pointed out that despite the promise of new opportunities, there are also some underlying risks. “On the one hand, diversification is better, on the other hand, money is invested in new asset classes without due experience,” he added.
Digital Asset Trading – Art Industry, Real Estate.
High price volatility and low market liquidity are challenges that have plagued the Art industry for decades.
To offset the heightened effects of this during the Covid-19 economic decline, Art dealers turned to a new method of investment that featured fractional ownership of artwork, collectibles and valuables. It effectively switched ownership of art from the physical world to the digital space. Art is often considered too expensive for a lot of people who desire them.
Through Non-fungible Tokens (NFTs) art has now been brought within reach of millions of people. Fractional-ownership system now allows thousands of people to collectively purchase a piece of art in separate tradeable units.
This trend is showing no signs of slowing down as a similar approach has since been introduced in the real estate market too. Prior to the pandemic Real-Estate Investment Trusts REITs were the main vehicle for the general public to invest in real estate without buying properties outright. Research by Forbes showed that fractional-ownership investments are becoming an increasingly popular trend in the real-estate market.
Tech Stocks and Remote-work Solutions Zoomed into Relevance
At the outset of the recession in March 2020, quite unexpectedly stock markets and index positions rose. A closer look at the numbers showed that Tech stocks were on the rise. This was due to investors moving their funds away from traditional long-term yielding assets like commodities, precious metals and Oil markets all of which had taken sharp downturns.
For instance, stocks of prominent companies like Amazon and TESLA rose by 60% and 70 0% respectively between March 2020 to March 2021.
Interestingly, these are classes of stocks that investors had often previously deemed too risky or volatile. This depicts the polarized reactions of retail investors to the pandemic in comparison to other similar shock events, like the 9/11 terrorist attack that reduced flows to risky asset classes.
As the pandemic spiraled out of control, various countries enacted strict lockdown measures to slow down its spread. To ensure continuity, businesses around the world had to apply mechanisms for their employees to carry out their work duties from the comfort of their homes.
Companies that provide infrastructure to make this happen had their share prices jump exponentially. For Instance the share price of Zoom Inc., rose over 400% by the end 2020. And in Q1 2020, the company reported a 191% increase in revenue.
Younger Investors Lead the Charge
During the first six weeks of heightened market volatility between February and March of 2020, a strong surge of retail investments was observed. A closer look at the specifics showed that a significant part of this was down to an influx of young investors most of whom were taking their very first steps in institutional investment.
As reported by the French public regulator of financial markets, Autorité des Marchés Financiers (AMF). “From the beginning of March, retail clients of French financial institutions bought shares on a massive scale, increasing their average purchase volumes fourfold, with overall volumes up threefold”.
AMF reports further showed that for most financial institutions, new investors who bought shares between 24 February and 3 April 2020 were 10 to 15 years younger than the average age of regular investors.
What’s next?
Economic activity in global markets has been buoyed by the widespread successes of vaccination campaigns. Investment volumes, especially industries that have survived the stress test and successfully adapted their operations to current situations are gradually catching up to pre-pandemic levels.
With all the new trends that have been observed, the future of investment markets is expected to change drastically.
ESG Investment Trends and Changes in Stakeholder Value
Specifically, companies that offer services that promote the actualization of ESG goals are expected to attract significant investments in the coming months. Particularly companies that promote low fossil fuel consumptions, low carbon emissions, and general environmental sustainability research are expected to dominate the trading charts over the next few years.
Similarly, as new market trends emerge and a new demographic of investors come on the scene, drastic changes in core-values among investors is expected in earnest.
According to the CFA institute, Investors are increasingly applying these Economic Social and Corporate Governance (ESG) goals and non-financial factors as part of their analysis process to identify what markets or companies to invest in.
Changes in Regulatory Framework
The varying levels of the devastating effects of covid-19 may lead to changes in regulatory frameworks. The pandemic affected different markets and industries at varying degrees. It is expected that new regulatory frameworks and stress testing techniques will be developed to forestall future recurrence.
Support for Startups and SMEs
SMEs and Startups have a significant role to play in the post-pandemic global economy. Startups were the most affected during the economic decline. According to a report by leading industry observer, Mckinsey, 55% of SMEs in the EU worry that they may shut down by Q3 2021.
Experts warn if the EU is to fully rebound from the devastating effects of Covid-19 on the economies of nations, adequate support needs to be provided for SMEs and Startups to thrive.
Mintos Co-Founder Martins Valters, believes that regulators have a huge role to play in the growth and survival of startups in the near future. Speaking at the recent meeting between EU Commision for Innovation & Research and European top CEOs, he opined that “the effort on the regulators side is significant to be able to synthesize existing regulatory frameworks and our innovative service”. He also said that regulators have to be careful not to hamper the growth of startups. “Such processes should have more support for both regulators and startups. I think we should remove the unnecessary obstacles”, he added.
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