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There is continuing instability and disruption across the world due to events such as the collapse of the Francis Scott Key Bridge near Baltimore, which caused shares in transport and coal to go down (reflecting the port’s significant role in automotive imports and coal shipments), to more general uncertainty with 2024 being the “ultimate election year” as almost half the global population head to the polls.
These events can have an influence on capital markets and the decision-making of investors. The markets can react quickly and while “sell offs” are often short lived, some events can fundamentally upset a sector and have longer lasting effects.
What Do We Mean When We Talk About Investor Sentiment?
Investor sentiment reflects concerns or expectations towards various markets and assets. It is distinct from a company’s fundamental values and is influenced by a variety of factors that can be broadly split into:
- The unforeseen, such as a global pandemic or the collapse of the Francis Scott Key Bridge; and
- The unknown knowns, such as elections or risks that can grow or change over time like climate change or acts of terrorism.
The stock market usually responds with some volatility and an increase in risk aversion amongst the investment community. A risk premium is often assigned to certain stocks. For example, Russia’s invasion of Ukraine affected the stock prices in countries near the war, particularly Europe, harder than those further from the invasion.
Such events can also be an opportunity for investors to buy into specific technology innovations, infrastructure developments or consumer demand driven by volatility.
What Impact Can This Have on a Company or Sector?
Investor sentiment can affect the prices of assets with each piece of good or bad news. When confidence falls, investors naturally become more discriminating. When “safe” household names fail, the reaction can be far greater, with longer, more damaging impact on sentiment than for a smaller, riskier startup.
Today, changes in investor sentiment happen much faster as a result of the 24/7 news cycle, social media and investor chat forums. For example, pharmaceutical companies benefited during the COVID-19 pandemic, whereas there was a sector-wide hit to UK construction in 2018 following the collapse of one of the UK’s biggest firms.
But don’t panic! According to Joachim Klement of Liberum, “the evidence is extremely clear on one thing: the vast majority of geopolitical events do not matter for equity market performance over investment horizons of one month or longer.”
How Do We Ensure That Our Clients Are Fully Prepared for When the Unforeseen Happens?
It is important that our clients maintain strong lines of communication so that they are in the best possible position to take advantage of recovery.
1. Have a strong investment case.
Build an investment case that differentiates you from your peers and separates your business fundamentals from the “noise” of the macro environment—what gives your company the competitive edge over your rivals? Are you consistently hitting or exceeding financial expectations? What are your long-term ambitions to outperform?
2. Keep the narrative simple and consistent.
Most investors are not sector specialists, nor do they have the time to dedicate to becoming one. Make it as easy as possible for them to understand what your business does. Don’t over complicate your core messages and ensure that these are threaded through all communications consistently.
3. Ensure access to information.
Company websites and social media are often the first port of call for current and future holders. Ensure these are kept up to date with news to demonstrate progress.
4. Bring your business to life.
Showcase the business and tell the story beyond the financials through site visits and engaging digital content.
5. Communicate your story to key stakeholders.
Maintain a regular engagement plan with relevant commentators to promote your business and reinforce its growth trajectory through third-party endorsement.
6. Build trust and credibility with investors—under promise and over deliver.
Showcase a strong leadership team that can demonstrate delivery through traction against set milestones or key performance indicators (KPIs) and provide confidence that the company has a clear path towards growth.
