Deal: Wizz Air boss Jozsef Varadi bought £643,000 of the airline’s shares
No-one knows where share prices are going to go from here, though some smart hedge fund managers may think they do.
Markets in Britain and the US rallied a little last week, but there were sharp corrections along the way.
Volatility, it seems, is with us for the foreseeable future.
The understandable lack of clarity in investment thinking can be seen in the response from various investment houses.
Invesco said on Thursday that in a ‘worst case’ scenario the S&P500 Index – a measure of the stock market performance of big listed companies in the US – could drop to as low as 1,400 in the next 12 months.
A frightening fall in equity prices from here of 40 per cent plus.
But its best case scenario points to a 20 per cent advance in share prices.
Talk about hedging your bets.
Meanwhile Janus Henderson believes the anticipated dip in corporate earnings across Europe of 25 per cent has already been factored into European equity prices.
And fund manager John Bennett says European stock looks oversold and ready for a ‘bounce’ on better coronavirus news.
But indicators suggested this previously – only for them to fall another 10 per cent.
Schroders talks of a ‘flicker of light’ at the end of what is still set to be a ‘very long tunnel’.
So, few words of comfort for investors from the investment experts. Few signals. So, hang on? Yes, don’t sell? Yes, buy? Maybe.
Why it pays to watch directors
For investors, one of the few indicators of a firm’s share price prospects lies in whether their directors put their money where their mouths are – that is, buy shares in the companies they oversee, even when all the news is doom and gloom and the shares are sliding in price.
In buying shares in their own firms, they are signalling they have confidence in the company’s future – and that the share price they are buying at represents good value.
According to stockbroker Liberum, the ratio of share purchases to sales by directors of FTSE All-Share Index listed companies is running at ten to one. This is far higher than its five-year average of just above two-to-one.
Although some of this buying may be an attempt by bosses to instil confidence in their firm’s shares, it can also be read as a signal that share prices are close to bottoming out and represent a buying opportunity for brave investors.
So, although it seems an odd time to invest in airlines, when Wizz Air chairman William Franke spent £700,000 on shares in the Hungarian carrier, he was making a 41 per cent saving on the price he would have paid had he bought at the peak of the market on January 2.
His chief executive Jozsef Varadi, the airline’s co-founder, did likewise.
Laura Suter is personal finance analyst at wealth manager AJ Bell. She has been tracking the growing number of directors buying shares in their firms in the past month.
She says: ‘As the Wall Street adage goes, there are many reasons why ‘insiders’ sell, but only one reason why they buy. It’s a signal that directors think shares in their businesses are under-valued.’
She adds: ‘Any buying by a company’s chief executive or its finance director is considered a powerful indicator of a company’s prospects as they are the individuals who are most likely to know the outlook and underlying performance of their business.’
Lee Wild, head of equity strategy at wealth manager Interactive Investor, says the spike in director purchases offers ‘some reassurance to investors who may be encouraged to see that management think all is not lost despite the economic and stock market turmoil’.
Panic sells… but who’s buying
AJ Bell has compiled a table of some of the most significant share purchases made by company directors in recent days – as well as those made by directors of stock market-listed investment trusts that provide investors with exposure to a spread of shares.
They include big share buys by the bosses of FTSE 250 companies Plus500 (a financial firm) and IWG (an office group) – and by directors of investment trusts Syncona and RIT Capital.
Gal Haber and Alon Gonen, co-founders of Plus500, have just bought multi-million pound tranches of shares in their business, at a combined cost of more than £8.75million.
The purchases, made at £8.04 and £8.35 per share respectively, so far seem shrewd given the share price has risen to more than £10. It means paper profits for Haber and Gonen of more than £500,000 and £900,000 respectively.
However, for Thomas Henderson, a director of Syncona, a trust investing in healthcare firms, his £2.47million purchase of shares has yet to yield paper profits. Shares in the trust currently trade at £1.93, compared to the £2.47 price Henderson paid – a paper loss to date approaching £600,000.
The same goes for Philippe Costeletos, a director of £2.5billion trust RIT Capital. Its investment remit is on preserving the capital of shareholders, but his recent £504,000 purchase – a 9 per cent saving on the January 2 price – has since fallen in value by 10 per cent.
As AJ Bell’s Suter says: ‘It is very hard for even well-informed executives to take a view on what will happen next.’
Will coronavirus sink house prices?
The property market has been frozen as estate agents are instructed not to do viewings and valuations and surveys can’t happen.
Meanwhile, banking giants Barclays and Halifax have axed a big chunk of their mortgage ranges – only offering new deals through brokers to those with the largest deposits – and the industry says it has been overwhelmed with requests for mortgage holidays.
Amidst all this, many are asking the inevitable question: ‘What will happen to house prices?’
On this podcast, Simon Lambert, Lee Boyce and Georgie Frost look at what buyers and sellers can do, how the freeze is affecting those due to move, and explore what could happen next for the property market.
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