Global Pandemic Buying Spree

By Brendan Ellich

In this unprecedented time, society’s consumption levels have fallen to levels last seen in the 90’s. The coronavirus caused the global markets to collapse, with the S&P ASX200 falling 38.9% from its all-time high. However, in such terrible times, company director investments have seen a massive spike.

So why has this been the case?

Bargains

The average decline of 38.9% has discounted many shares in comparison to their previous highs. With this in mind, many stocks have become severely undervalued, such as National Australia bank (ASX:NAB), falling to $14 per share. These highly discounted prices enticed a company director to purchase $160,000 worth of shares.

Support

It can be assumed that directors are buying up their company stock in order to prove support for the future of the company and its fundamentals. For example, Fortescue Metal’s (ASX:FMG) CEO, Andrew Forest bought 4 million shares, a staggering $35 million investment in his company. This was completed through the 7-9th of March, when the market had only felt half of the economic devastation caused by the virus. Since then Fortescue stock has rallied above levels seen before the coronavirus began its full effect on the market.

Now there could be two forces at play for this rally to occur:

The low P/E ratio of Fortescue? Or Andrew Forest restoring hope in his company through the purchase of 4 million FMG shares ?

Market recovery

While investors were panicking and selling shares in the market to save their portfolios from large losses, the large interest of directors may have been the reason for demand to outweigh supply.

The question at hand is whether the short squeeze is enough for the market to recover and remain in bull territory.


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