The biggest beneficiaries at the moment are those residents who, despite the market correction experienced in 2022, have continued to make regular contributions to pensions at level 2 and 3, says Kārlis Purgailis, chairman of the board of the Citadele bank’s subsidiary CBL Asset Management.
“The events of the last year confirm once again that the financial market is very dynamic, and falls are followed by upswings, so the winners are those who make investments regularly. In this case, those residents who have continued to make contributions to pensions at level 2 or 3, share as a result of the market rise, they have compensated for the short-term losses experienced as a result of the 2022 market correction, and their pension savings are growing again. The contributions made have allowed pension managers to purchase relatively cheap assets, the value of which has now increased considerably,” Kārlis Purgailis describes the situation in the market.
“In the most advantageous position are those citizens who use active pension plans, where the share of shares or indices of various companies makes up to 100% of their volume – the average yield of these plans during the last six months is about 9.3%,” says the chairman of the board of CBL Asset Management .
“Conservative plans, which do not practice investing in stock markets, but in bonds, where a significant yield increase has appeared only recently with the raising of Central Bank rates, which is directly linked to bond interest rates, are doing relatively worse,” explains Purgailis.
Analyzing the reasons for the rise of the stock market, the expert highlights three main factors. “At the beginning of Russia’s aggression in Ukraine, there was huge uncertainty in the market about the further development of events and the level of security in Europe, but currently market participants have assessed the war as a relatively local problem, as a result of which the impact on the US and European economies is small. Of course, the escalation of events can have an impact on the economy at the world level, but currently the market does not foresee such an opportunity,” says the representative of the subsidiary company of Citadele bank.
As the reason for the increase in share prices, he also points out the clearer direction of monetary policy: “Even though the Central Banks continue to raise rates, unlike last year, there is an approximate certainty about the future development, and the first rate cuts could follow at the end of the year or next year, and this moment for the stock markets could be very favorable. In the past, investors were worried not only about the duration of rate hikes, but also about recession expectations. Such an environment and investor stress stimulated the selling of stocks, but now the situation is more favorable for investment – although the economy has slowed down, recession expectations have not come true. Avoidance out of recession shows the resilience of the economy in challenging conditions and thus stimulates the rise of the stock market.”
As a third factor, Purgailis mentions the efforts to control inflation: “High inflation, which was caused by the rise in energy prices and the collapse of supply chains in the circulation of goods and raw materials, is gradually being stabilized in most of the world. At the same time, the prices of energy resources have also stabilized and in some cases are even cheaper than before the energy crisis Both the US and European Central Banks have set a goal of inflation retreating to the 2% mark, and every percentage point reduction in the markets is perceived as a positive step for the future rise of the stock market.”
2023-07-03 10:25:00
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