The year started positively on the international stock markets, but sentiment changed in the second half of January and the gains of the first half of the month were given back. The MSCI World index that reflects the world’s largest stock markets ended -0.3% in euros. The largest US and European companies lost 0.4% and 0.8% of their value, respectively, measured in euros.
In the US stock markets, a war broke out in January between day traders / retail investors on the one hand and aggressive leveraged hedge funds on the other. Since the 2008 financial crisis, wealth inequality has grown rapidly in the country. Although the central bank has declared maximum employment and price stability as its objectives, the monetary policy used to pursue these goals has contributed to a rise in the prices of almost all assets.
Cheap money from banks and capital markets has been available against the collateral of assets. In the United States, the generosity of central banks has brought more benefits to those who already had assets and who used cheap leverage to hoard more. In addition, the general impression is that hedge funds have been manipulating the securities markets with impunity in order to rob retail investors there as well.
Social media together with the development of financial technology has enabled small investors to organise large-scale coordinated actions to influence the share prices of small and less liquid companies. Since, according to public opinion, hedge funds do not play quite by the rules, small shareholders did not overly care whether or not their activities qualified as market manipulation. Revenge was a priority, and as there was a chance to make money on it, hedge funds were attacked.
Supervisory authorities are now facing a major challenge as to what and how to regulate. Until recently, they were on course to restrict the services and products that can be offered to small investors, all in the name of protecting the latter. January showed that retail investors might not be so helpless in the information society.
A multitude of furious but coordinated retail investors can cause a lot of confusion and instability in the securities markets, which calls into question the efficient functioning of the markets and the process of pricing capital fairly. Investing may become more popular as it becomes more playful, but over-simplification can lead to a situation where entertainment is valued over the consideration of risks.
I believe that raising investment awareness and improving information will work better than banning and ordering, allowing and denying. Why artificially restrict retail investors’ access to certain financial instruments and related analysis? Regulations and freedoms should be balanced. Greater rights mean greater responsibility.
The unspoken consequences of the pension reform
The goal of the funded pension reform, which was pushed through last year, still makes me scratch my head. The message of the reform leaders, “Money is free”, was simple and populist. It allowed people to immediately withdraw the savings they had accumulated over the years and spend them as they pleased.
The cost of the money withdrawal wasn’t mentioned. The 4% that will be deducted from salaries as social tax will no longer accrue to the taxpayer, but to the state budget. Citizens whose personal capital will not accumulate can only rely on state support.
Fortunately, the pension reform provided a third option alongside abandoning the second pillar or continuing to make payments to a pension fund. The withdrawn capital can be placed in a personal pension investment account to avoid an increase in the tax burden.
Now that people have the choice of either withdrawing money immediately but paying more taxes and relying only on the state pension, or continuing to save, I hope that saving for retirement will be seen as a freedom rather than an obligation.
Even those who have been reluctant to save for retirement should now be reassured that the assets in their pension fund are theirs and that no one can take them away. But those who foolishly boasted that they had never saved anything must admit that they have no accumulations and nothing to withdraw.
Pension fund units are the largest financial asset for many families. That is a fact that speaks for itself.
The year started positively on the international stock markets, but sentiment changed in the second half of January and the gains of the first half of the month were given back. The MSCI World index that reflects the world’s largest stock markets ended -0.3% in euros. The largest US and European companies lost 0.4% and 0.8% of their value, respectively, measured in euros.
