The Esma boss is concerned that young private investors in particular are underestimating the risks on the stock exchanges.
(Photo: ESMA)
Frankfurt The European financial market regulator Esma warns investors of impending losses on the stock exchanges. “We see high risks for investors of further – potentially significant – corrections in the markets because nervousness remains high and geopolitical tensions are increasing,” Esma said on Tuesday.
Esma boss Verena Ross said that prices on the stock exchanges had already crashed twice last year: First because of the crisis in the Chinese housing construction group Evergrande, then because of the flare-up of the corona crisis.
“Market swings remain high and Esma expects even more uncertainty for investors going forward,” warned Ross, who has chaired Esma since November. “All investors must be aware that the risk of market corrections remains high.”
Esma is particularly concerned about private investors. These have been investing more in the financial markets for several years – also thanks to new, user-friendly trading apps, said Ross.
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This brings opportunities, but also risks. She sees the danger that many of these often young people will buy the securities in the expectation that the price will rise significantly “and not realize that this also entails high risks,” explained Ross.
In the past few days, the threat of Russian troops invading Ukraine has weighed on financial markets around the world. The German leading index Dax fell by more than three percent on Monday and marked a new low for the year at 14,844 points. The situation was similar at many other European trading centers.
The Dax later recovered and recaptured the 15,000 point mark. On Tuesday, the leading German index continued to rise and rose by 1.4 percent to 15,329 points by midday.
Crypto markets hit record highs
One factor in Tuesday’s increase: According to the Russian news agency Interfax, parts of the Russian army in the south and west have returned to their barracks. Accordingly, the futures of the US stock indices also went up. These futures contracts are currently signaling that the major US stock market barometers will open about one percent higher.
Esma’s warning to private investors is not a direct reaction to the Ukraine crisis, but has to do with the publication of its market report (“Trends, Risks and Vulnerabilities”). According to Esma analysis, crypto markets hit a new all-time high in November 2021 with a volume of €2.6 trillion.
The Paris-based authority attributes this to investors’ increasing risk appetite and the fact that more and more institutional investors are buying cryptoassets. Esma explained that the business with so-called stablecoins, which are linked one-to-one to an underlying asset such as the US dollar, is growing rapidly. The same applies to decentralized digital networks (Decentralized Finance, or Defi for short), through which financial transactions are processed without intermediaries such as banks or stock exchanges.
However, due to the boom in stablecoins and Defi, Esma is increasingly concerned “about the resilience of business models” in this area and “the high product and market risks that investors are taking on”.
More: Dax current: German leading index leaves the greatest fears of war behind.