02.05.2025
While this spring’s turbulence in the stock markets may seem unsettling for investors, it is not particularly unusual. According to Kristo Oidermaa, the Fund Manager at LHV, the current situation actually presents a valuable opportunity for pension funds to make high-quality investments at more favourable prices.
This year, driven largely by political rhetoric and an intensifying trade war, financial markets, and with them, pension funds, have taken a downward turn. ‘The sharp declines in stock markets have been so significant that the topic has made front-page news, raising concerns about the performance of pension funds,’ Kristo Oidermaa, the Fund Manager at LHV, noted. However, he reassures pension savers that market downturns are normal occurrences, typically seen every few years.
Oidermaa emphasised that actively managed pension funds often view such market declines as a chance to invest in high-quality assets at reduced prices. ‘It is like the discount season at a shopping mall, therefore, by carefully reviewing the different opportunities available, you can find excellent deals,’ he explained.
One of the deepest and longest market downturns in recent decades occurred during the 2008–2009 global financial crisis, which saw a prolonged period of decline and recovery. Stock markets peaked in late 2007 and hit bottom 18 months later, in March 2009. During this time, the US S&P 500 index fell by 56.3% and took more than five years to surpass its pre-crisis highs of 2007.
Another significant correction happened in 2020 during the COVID-19 pandemic. This market event was marked by a rapid decline and a swift recovery, even though the economic effects were more long-lasting. It took only five weeks for the US S&P 500 to fall from its February peak to the March low, losing 33.8% of its value. According to Oidermaa, this was largely due to uncertainty, since no one had experienced anything like it before. ‘Countries went into lockdown and business activity came to a halt. Still, the markets rebounded quickly, fuelled by unprecedented government stimulus measures. Within five months, stock indices were setting new records again,’ Oidermaa said.
A couple of years later, in February 2022, the war between Ukraine and Russia began. That period was marked by soaring energy prices, high inflation, and the start of a global interest rate hiking cycle. ‘For example, the US Federal Reserve raised its benchmark interest rate 11 times in just over a year, which significantly increased borrowing costs and negatively impacted the value of financial assets. The S&P 500 fell by 25.4% and only recovered by January 2024,’ Oidermaa described.
With regard to the recent market downturn and subsequent partial rebound, the LHV Fund Manager believes it is too early to draw conclusions. ‘We still do not know the final shape of US trade policy or the full economic impact of decisions already made. Between March and April, the S&P 500 declined by 18.9% from its peak, while LHV’s Pension Fund XL dropped only 7.2%, as most of its stock holdings are focused on Europe,’ Oidermaa added.
According to Oidermaa, pension funds have historically recovered from market downturns that occur every few years. ‘Sharp drops in stock markets create opportunities to acquire strong positions at lower prices. Particularly for actively managed funds, there is a chance to reduce exposure when market risks rise and re-enter at better valuations,’ the Fund Manager concluded.
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