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Investments made in crisis

The prices for many financial instruments drop significantly during the crisis, as one group of investors after assessing potential risks or being overcome with panic, sells assets in order to fix their losses or reduce the future probable loss. Another group of investors, usually those with a longer investment horizon (institutional investors) after having assessed the risks, prefer to invest at the time of the crisis expecting that their investments will bring them profit in the long term upon the market stabilization.
Investments made in crisis

Crisis causes volatility in the stock markets, and any volatility is always an opportunity. Large institutional investors have the means and tools to take advantage of this opportunity. “If you are a long-term investor, market volatility should not bother you. The market recovers after any downturns, it only takes time. If you have clearly defined long-term goals, you should not panic under the influence of emotions by selling depreciating assets during a period of a sharp fall in the market, you just need to wait out this time. The correction in the stock markets is fast, but the recovery takes some time,” says Kairat Chegebayev, the Board Chairman of JSC LIC Nomad Life.

In practice, during the stock market decline, many investors increase their investments as it is an opportunity to identify a favorable “entry point” in order to grow return on investment. “Each investor and investment company evaluate the fundamental parameters of the company, which securities are traded on the stock market, and in case there is a positive investment potential in the long term, they make a purchase decision. In most cases, during stock market shocks, there is a panic sale of the company's securities, which can have strong fundamental and financial indicators. Therefore, buying “cheaper” securities can be an investment-attractive strategy for an investor in the long term,” explains Gulzhan Dzhaksymbetova, the Board Chairman of LIC Centras Kommesk Life.

Thus, professionals, large institutional investors use the securities market’s volatility skillfully. And if they are confident in the forecast of growth of temporarily lowered prices, they undoubtedly will take advantage of this. For example, Chinese state-owned companies are now sizing up the blue-chip companies of the Russian Federation that have fallen in price.

What to invest in?  

There are several effective financial instruments on the market, for instance, investing in securities, bank deposits and endowment life insurance. Each of these options has its own peculiarities. In the first case, there is a prospect for high profitability. But it is worth considering that the stock price often changes, therefore, their value should be constantly monitored so as not to go into the red. Securities are best for long-term passive investments. A deposit is convenient when one needs to create a financial reserve and have a quick access to it in case of emergency. However, when opening a deposit in dollars, it is worth considering that the maximum interest rate does not exceed 1%. “Endowment life insurance program makes it possible to save money, like on a deposit but with a higher return, with flexible terms for paying premiums and the possibility of receiving partial savings during the term of the insurance contract. It also provides insurance coverage and tax benefits are applied in the calculation of wages. For example, the annual effective remuneration rate in dollars is up to 2.76% under the Freedom First program, where the contract is concluded for a period of 2 to 5 years. The savings are also not subject to recovery and division of property in divorce and litigation at the time of agreement,” says Azamat Yerdessov, the Board Chairman of LIC Freedom Finance Life.

Halyk-Life’s experts believe that there is no universal recommendation for investing during a crisis, since risks always increase in these moments. However, a novice Kazakhstani investor needs to increase the share of dollar-denominated assets in his basket. “Various options can be considered here, these can be insurers' foreign currency savings programs, for example, the Halyk-Kazyna program by Halyk-Life JSC, and through broad American indices. In the short term, from 1 to 3 years, I believe the energy sector will be of interest. Investing is a very critical matter and a consult with a professional, who will find out the risk profile, state of the client's assets, his plans and other circumstances on which the individual investment strategy depends, is desirable,” explains Vitaly Lyubimov, the Managing Director of LIC Halyk-Life.

The life insurance institution as an investment tool is one of the most stable and fundamental in the world, since it is based on long-term investments and is a source of long-term money. “The advantages of endowment insurance are that along with life insurance and money savings, the client gets return on investment and participation in dividends. Despite the fact that many LICs stick to a conservative approach in their investment strategy, companies have opportunities to increase client’s income through a balanced approach and competent management of financial instruments. Endowment life insurance is still one of the main instruments for long-term savings, while providing protection of both savings and life, including devaluation risk. Thus, the investments are diversified and do not depreciate,” emphasizes Gulzhan Dzhaksymbetova.

According to Nomad Life’s experts, one of the main methods for minimizing behavioral errors when the markets are stormy is index investing. With such management, the minimum number of transactions is made, respectively, transaction costs are lower than with active management. Besides, index management is a professional management. Financial investment companies are more likely to have the necessary knowledge and skills than individual investors. NOMAD GOLD Invest is asset management within the framework of our proposed line of investment areas, the main goal of which is to follow the benchmark index. For example, the NOMAD GOLD Invest portfolio of the US Top 500 includes assets following the S&P 500 Total Return (S&P 500®). LIC Nomad Life will strive to follow the index with a minimum deviation of returns (Tracking error). When forming investment portfolios, Nomad Life focuses primarily on the historical results of stock index returns, and also chooses financial instruments from the largest foreign management companies, ten investment strategies diversified both by territory and by industry, which is very important for minimizing risks. We have chosen a passive index investment approach, a reliable way of investing, and the structure of portfolios is clear to clients. Some people can and want to invest, they have some preferences: some understand the medical industry, others understand technology, we give the opportunity to form investments as they wish,” explains Kairat Chegebayev.

When choosing a company to invest in, an investor should bear in mind that any investment, both in a crisis and in calm times, carries a risk. In times of high volatility or significant drop in prices, new opportunities to make purchases of depreciated assets at interesting prices open up for a long-term investor, however, the risk of losing part of their savings increases. 

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