Market volatility encourages investors to be risk-takers

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2 years ago

We all know that Filipinos have a great expectations to Earn in Investments.

I myself is considered as a risks takers

The volatility brought about by the pandemic made some investors more risk-takers, especially on the equities market, officials of Pru Life UK Investments said.

In a briefing, Pru Life UK Investments chief executive officer Lee Longa said economic recovery is expected this year and this will benefit more investors who have placed their funds even during the pandemic.

“Right now, I think the total customers we have is around 2,000 already within six months of operations,” he said.

During the same event, Ricky Maddatu, Pru Life UK Investments head of fixed income, said the negative interest rate environment, wherein inflation is higher than the central bank’s key policy rate, has a different impact on the bond market and the equities market.

Average inflation in the first two months of this year alone stood at 4.5 percent, higher than the record-low 2 percent rate of the Bangko Sentral ng Pilipinas (BSP) overnight reverse repurchase (RRP) facility.

Maddatu said bond investments are expected to get “very low returns” in the current situation contrary to equity investments.

“Negative interest rates are actually pushing investors towards riskier assets,” he said, citing this started in the past decade, or after the 2007-2008 global financial crunch when the equities market had a bull market.

Charles Wong, Pru Life UK Investment Head of Equities, said there is “a kind of financial repression” among bond investors and savers when there is a negative interest rate.

“But, overall, the picture shows a kind of broad spectrum of risk-taking that was not everywhere in the market in 2007 times,” he said.

Wong said there is now “a huge misallocation of capital” towards the equities market and “valuation has really hit all-time high levels this year especially in the US markets.”

He said risk-taking in the last three months is at a level that has not been seen before especially among retail traders, as well as on cryptocurrencies.

“The consequence (of a negative interest rate) continues to be there. Hopefully, we can see a realignment of those risk return metrics, especially when you are looking at how the central banks position themselves,” he said.

Volatility in the equities market is expected to continue “as long as we are experiencing a very low interest rate environment,” he added.

So What is Volatility?

Volatility is a statistical measure of the dispersion of returns for a given security or market index. In most cases, the higher the volatility, the riskier the security. Volatility is often measured as either the standard deviation or variance between returns from that same security or market index.

In the securities markets, volatility is often associated with big swings in either direction. For example, when the stock market rises and falls more than one percent over a sustained period of time, it is called a "volatile" market. An asset's volatility is a key factor when pricing options contracts.

Understanding Volatility

Volatility often refers to the amount of uncertainty or risk related to the size of changes in a security's value. A higher volatility means that a security's value can potentially be spread out over a larger range of values. This means that the price of the security can change dramatically over a short time period in either direction. A lower volatility means that a security's value does not fluctuate dramatically, and tends to be more steady.

One way to measure an asset's variation is to quantify the daily returns (percent move on a daily basis) of the asset. Historical volatility is based on historical prices and represents the degree of variability in the returns of an asset. This number is without a unit and is expressed as a percentage. While variance captures the dispersion of returns around the mean of an asset in general, volatility is a measure of that variance bounded by a specific period of time. Thus, we can report daily volatility, weekly, monthly, or annualized volatility. It is, therefore, useful to think of volatility as the annualized standard deviation.

Source:

Lead image download from google.

https ://www.pna.gov.ph/articles/1132950

https://www.investopedia.com/terms/v/volatility.asp

FINAL THOUGHTS

Investment is better than Saving but it has so much risk to consider.

Better to study before investing

And always Invest what you afford to lose.

FINALE

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Comments

Price volatility makes the Market going on a roller coaster ride. and It's Either going Up, or going Down.

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2 years ago

That's true. We must learn it's trend

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2 years ago