The SVB bankruptcy shocked investors.
(Photo: dpa)
Dusseldorf The bankruptcy of California’s Silicon Valley Bank (SVB) shocked German investors. Investor sentiment on the German market has fallen to its lowest level since the beginning of the year. This is shown by the Handelsblatt survey of Dax sentiment among almost 8,000 private investors.
The US bank unexpectedly went bankrupt last week. On Friday, the US deposit insurance company FDIC took control of the institution, which was previously the 16th largest US bank and a prominent start-up investor. At the weekend, the US government then announced that it would guarantee bank customers’ balances.
>> Read about this: Investors nervous after US bank collapse – Dax falls below 14,900 points
The Handelsblatt survey was completed before the US government bailout. “Therefore, the survey result shows the state of shock in the financial world very well,” says sentiment expert Stephan Heibel, who evaluates the weekly survey for the Handelsblatt and adds other indicators.
Investor sentiment fell from plus 0.5 to minus 1.6. “This shows the rush of fear and panic before a moment of shock like the Lehman bankruptcy, when the state didn’t step in to help,” explains Heibel.
As mentioned, investor sentiment has fallen to its lowest level since January 3, although the loss is still comparatively moderate. Sentiment has already fallen more sharply twice this year – albeit from a much higher level.
However, there is also a great deal of uncertainty. The corresponding value fell from minus 1.2 to minus 4.2. This is the sharpest drop this year. Heibel explains this by saying that the involvement of the SVB with other banks cannot yet be fully assessed.
>> Read about this: How dangerous will the end of the SVB be for the financial system?
Future expectations have therefore fallen from minus 0.7 to minus 1.6, the lowest value since the end of September last year, when the stock markets reached their correction low after the start of the Ukraine war.
Against this background, it is not surprising that the willingness to invest remains at an extremely low level of plus 0.1.
Although the extremely pessimistic expectations of the survey participants can be a good sign from the perspective of sentiment theory, Heibel reminds us: “If there is a lot of fear and panic in the market, we assume that all investors have already sold their positions and taken up hedging positions.”
Investors are therefore positioned for falling prices, Heibel notes: “If the negative event, an extension of the SVB bankruptcy to the financial sector and then possibly to the entire economy, does not occur, many investors are suddenly wrongly positioned. They need to cover their hedging positions to limit losses on those positions. Immediately afterwards they have to buy shares if they want to participate in the expected rally.”
The managing director of the analysis house AnimusX explains that the German leading index Dax continued to fall on Monday with the aftermath of Friday and the weekend: “On Monday morning investors sold who only found out about the bankruptcy at the weekend and are now afraid of further bankruptcies have.”
Interest rate expectations are likely to fall
However, Heibel, who also publishes a market letter called Heibel-Ticker, assumes that prices will stabilize quickly: “The rescue of the SVB by the US government is a blessing for the financial markets. Because now further interest rate increases have become less likely, or the interest rate steps are becoming fewer and smaller. Otherwise the risks are too great – the SVB has shown that.”
More reports on the consequences of the SVB bankruptcy:
Because the rising interest rates make financing more expensive for companies. The start-up customers of the SVB therefore used up their deposits much faster than expected. In order to be able to pay out funds, the SVB finally had to sell bonds, the prices of which had fallen significantly due to the rise in interest rates. The bank made losses as a result, which widened as more and more customers withdrew their funds, triggering a ‘bank run’.
However, if interest rate expectations fall due to the bankruptcy of the SVB, the financing conditions for companies will improve again, which will have a positive effect on their profits. Future profits are also discounted less, which stabilizes company valuations.
Possible entry signal
Heibel therefore sees the intervention of the US regulatory authorities, the falling interest rate expectations and the poor investor sentiment as a possible entry signal: “In the past 16 years, there were only seven weeks in which the expectations of our investors were as negative as they are today. On average, the Dax rose by 11.4 percent in the two months that followed.”
For traders, it is therefore currently a “good moment to go ‘long'” – i.e. to bet on rising prices. In the seven previous situations in which the mood was similarly bad, the Dax only slumped further in April 2022.
There are two assumptions behind surveys such as the Dax sentiment with more than 7800 participants: If many investors are optimistic, they have already invested. Then only a few are left who can still buy and thus drive prices up. Conversely, if investors are pessimistic, the majority of them have not invested. Then only a few can sell and thus depress the courses.
Do you want to take part in the survey? Then let yourself be informed automatically about the start of the sentiment survey and register for the Dax sentiment newsletter. The survey starts every Friday morning and ends on Sunday afternoon.
More: Investors make these ten mistakes from the point of view of stock market psychologists