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Director investments signal confidence in market rebound

Director investments signal confidence in market rebound

The level at which managers are buying shares in their own companies is currently at a five-year high, despite the spreading coronavirus crisis knocking investor confidence.

Data from equity analytics platform Ortex showed 61 per cent of the total value of buy or sell transactions from people working in a company in March was a ‘buy’ — significantly more than the 24.5 per cent average for the past five years and the highest point recorded over that time.

The buy level in terms of number of transactions was at 62 per cent, the highest since the start of 2019 and one of the highest levels recorded over the past five years.

Source: Ortex.com

A spokesperson from Ortex said: “One interpretation of these numbers is that insiders are confident about the speed and the strength of the economic recovery that will follow all of this.

"One company coming up in these March stats is International Airlines Group, where two directors have invested significantly since the outbreak of the crisis. The chief executive for Iberia bought 70,000 shares on March 11, and another director bought 85,900 shares on March 9."

Jason Hollands, managing director at Tilney, said the figures did not surprise him and that investors should take comfort from the findings.

He said: “The coronavirus pandemic is a very painful shock to the global economy but it will ultimately be transitory and a recovery will follow, as sure as the night follows the day. 

“There will of course be some incidences of permanent destruction of capital, where small businesses fold and possibly entire sectors that might require full scale state bailouts through temporary nationalisation.”

But Mr Hollands said many other well-managed, great businesses with sound balance sheets would get through a “temporary squeeze” on earnings and return to form, adding these were still “great businesses” when their shares were down more than 20 per cent in the short-term.

He added: “Indiscriminate share price declines and sentiment-driven selling create buying opportunities for longer-term investors, including directors and senior management teams who are willing to look beyond the next couple of months of trading uncertainty.”

But Adrian Lowcock, head of personal investing at Willis Owen, disagreed. He said chief executives and business leaders were “no better than anyone else” at predicting the bottom of the crisis or the share price of the companies they work for.

He said: “Predicting market and share price movements is not the reason they are employed. Very few businesses would have had in their crisis management a plan which covered the current situation.”

Mr Lowcock added company management would be more familiar with the state of the industry they operated in — as well as the financial strength of the business they work for — so he thought the data should instil “a little confidence”, but added he was wary of following company management into a stock.

imogen.tew@ft.com

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