The pandemic’s impact transcended the boundaries of most economic activities, and the financial sector is not an exception. Ravaging global recession is rewriting previous economic and market prognosis. As a result, brokers have decided to recalibrate their strategies. With fewer safe harbors available, new investment approaches resort to both greater conservatism and flexibility.
Despite the recent stabilization across stock markets many investors remain skeptical that we might have reached the bottom of the bear market. The vaccine is many months ahead and nobody knows about the actual levels of volatility that might potentially hit the indexes at any time. One of the basic ways to protect the portfolios has been resorting to gold and cash that could serve as an effective hedging tool against meagre interest rates and the possible collapse. For instance, while the major central banks rely on a printing machine to replenish money supply, gold carries precious scarcity and could supply enough security in times of the massive disruption.
Another vital strategy on the personal level is to act wisely in regard to retirement accounts. Data from the previous financial calamities indicates that workers who did not lose their jobs and did not have to withdraw from their retirement accounts to pay basic bills rebounded fairly quickly. Thus, people who keep adding stock to their retirement accounts usually benefit more, while stock market volatility could exercise small impact on wealth if you don’t sell it immediately.
The standard hints, however, might not be reflecting the array of strategies that emerged as a response to the outbreak among the financial professionals. Small and big brokerages basically have learnt to rediscover their professional field as driven by growing concerns about potential losses and desires to find the protective hedge against the current worldwide calamity.
The pandemic exercised strong impacts on the ways firms operate on structural levels. Robust changes and bearish behavior pushed the traders to reconsider handling of the assets.
Recently, Wall Street Journal reported that large moves in U.S.-listed Chinese stocks have been putting brokers on edge, leading some to take steps to protect themselves from losses. Furthermore, the pandemic has exacerbated exponentially the rate of the technology disruption faced by brokers. The remote work policies have spearheaded adoption of digital tools by many traditional businesses that had been resisting them even a few months ago. In effect, the enhanced tech adoption basically separated firms on those that have already managed to digitalize their model and embrace the new reality, and those still sticking to the more traditional practices.
Nimble brokerages with a diversity of tools emerged as the major winners of the current slump and secure greater room to maneuver.
For example, Sova Capital, headquartered in London, is an independent brokerage with a focus on emerging markets, offering trading and execution services, recently reported audited financials for the year ended 31 December 2019. The company’s total assets have increased by 22% compared to 2018 due to various factors, such as positive results in sale and repurchase agreement activity. This led to an increase in the reverse repurchase balances from $1.304m to $1.417m, an increase in cash balances from $381m to $566m, as well as growth in open positions in financial instruments from $727m to $925m. Within the same period, net profit after tax increased by 91% to $65m.
This was predominantly driven by substantial revenues generated by increased trading activity using a wider range of financial instruments, as well as an improvement in sale and repurchase agreement activity. Strong results and abilities to navigate in the current volatile settings have equipped the firm with levers to recalibrate its activities and better serve the needs of the clients’ shifting demands.