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Wealth Management

ONLINE STOCK BROKERS ARE BENEFITING IN 2020

2020 has changed our lives in dramatic ways. Thanks to COVID-19, many of us now work from home. Rather than go to the doctor’s office, some have embraced telehealth apps. And instead of seeing brokers in the flesh, many have opted to sign up for online brokerages.

Before COVID forced us into quarantine, we were hesitant to do their investing online. But, with in-person meetings no longer possible, we’ve finally seen how convenient it is. This trend has been a boon for online stock brokerages. Questtrade added 50,000 new accounts in Q1 2020. Robinhood, a popular American trading app, saw three million new members join in the first four months of 2020.

Is online trading here to stay? Is it in the best interest of investors to engage with these services without first consulting a professional? We’ll examine these issues in today’s article.

 

Business Has Been Booming For Online Brokerages

As lockdowns forced millions of Americans into their homes, boredom quickly set in. Sports leagues around the world had suspended play, so that was out. While some theatre chains streamed movies online, new releases were few and far between. And land-based casinos were locked up tight.

At first, we watched every show in our Netflix queue. We even stumbled across the spectacle that was “Tiger King.” And then, in April, a little gift landed in the bank account of hundreds of millions of Americans.

It was the federal Coronavirus benefit. Approved by Congress in March 2020, the IRS began to send checks worth as much as $1,200 to eligible Americans. As of June 2020, the government has sent more than 159 million checks.

For some, this massive injection of capital went straight to rent, bills, and other necessities. But, for those lucky enough to have a stable income, this windfall became seed money for the stock market. At first glance, putting capital into the S&P or the Dow Jones during the COVID crash seemed suicidal.

But, as losses slowed, the media played up the massive correction as the best buying opportunity since the Great Recession. Treasury Secretary Steve Mnuchin concurred, saying the Coronavirus selloff would be short-lived.

And so, millions of Americans, many of whom had nothing but time, plunged their $1,200 extra dollars into the stock market. With in-person brokerages shuttered, people flocked en masse to services like Questtrade and Robinhood.

 

Robinhood: A Major Factor In The COVID Crash Recovery?

As we already mentioned, more than three million new investors have signed up with Robinhood since the pandemic started. This app, which got its start back in 2013, has long had a cult following among Millennials for making investing cheaper and more straightforward.

Then, the COVID crisis introduced millions more to this stock trading app. At first, Robinhood creaked and groaned under the strain. In early March, when COVID-related market swings began, the app crashed several times.

As the company adjusted to the new loads, though, their user base surged. By the end of March, they had ten million users. Then, as stocks sat 40% off their all-time highs, these new app users began scooping up the “bargains.”

To be sure, some stocks got oversold during panic selling in March. However, given the new realities of our COVID-infected world, these novice investors made some “curious” picks. Consider the case of Delta Air Lines (DAL). Of all industries affected by COVID, the virus has hammered travel the worst.

Now, few Robinhood users held DAL before March 2020. Yet, after Delta’s stock lost more than half its value, Robinhooders bought up hundreds of thousands of shares. DAL has since rallied 50% to around $30/share since hitting its 52-week low. Even though, for the foreseeable future, international travel won’t be a thing.

We see a similar trend emerging with publicly-traded travel/travel-adjacent companies like Boeing, Hertz, and MGM. Despite the bleak future these companies face, Robinhood investors are piling in. Perhaps they think things will go back to normal soon, pushing prices 2-3x higher, thereby making them piles of cash.

But, if any of these companies go bankrupt, they’ll be in for a rude awakening.

 

Will Interest In Online Trading Endure Post-COVID?

Currently, new Robinhooders and other novice investors have heavily chummed the market’s waters. In a way, they are like children who have yet to learn that stove elements are hot. In other words, they’ll have to get burned badly to learn their lesson.
In particular, most don’t realize that bankruptcy proceedings seldom favor retail investors. On the other side, these shareholders get next-to-nothing – if anything at all. As of June 2020, this reckoning hasn’t happened yet. Stocks are currently trading around 10% below their post-COVID high, but well above 52-week lows.

When the next big plunge does happen, though, loads of over-leveraged Robinhooders/newbies will get flushed. If anything, we’re deeply concerned – according to a recent Yahoo Finance report, 20-year-old Alexander Kearns got cleaned out on a bad trade he made earlier this month.

His account briefly showed him $700,000 in the red, which later reset to zero. It appears he thought he owed that amount, so he committed suicide shortly thereafter.

While not everyone will react as severely to busting their account, the coming crash will greatly reduce investment post-COVID. The current class of inexperienced investors do little (if any) research. They treat markets like a poker game. As any experienced card player knows, the money always flows to the sharks in the long run.

In our view, a small percentage of these new investors will stick around. They are the ones doing extensive research, making smart bets, and learning from their mistakes. The rest will slink away after torching thousands of dollars in life savings.

 

Prepare For Stormy Seas

If you are new to equities investing, batten down the hatches. The current market frenzy won’t last forever, as it is pumping cash into stocks with poor long-term prospects. When it all comes crashing down, many of the neophyte investors posting on /r/wallstreetbets will mysteriously vanish.

Don’t be a statistic. Do your homework, stay within your bankroll, and keep learning. Invest wisely – 2020 still has plenty of tricks up its sleeve!

Wealth Management

DON’T RISK IT ALL WITH NON-COMPLIANCE

By Paul Sleath, CEO at PEO Worldwide

 

Did you know non-compliance costs more than twice the cost of maintaining or meeting compliance requirements?

Yet, companies continue to overlook proper compliance procedures, choosing to ‘wing it’ or do it on a shoestring budget instead.

We get it. Today’s business owners have a multitude of priorities to juggle, top of which is turning a profit and growing. When you’re focusing on driving success, compliance can easily fall by the wayside.

But success is of little consequence if a government entity dissolves your company because you failed to comply with certain legal requirements.

Keeping on top of regulations

In the corporate world, compliance involves adhering to a wide range of laws and standards designed to protect your employees, customers and other stakeholders — and generally making sure you “do the right thing”.

No matter what industry or type of business you work in, compliance is a big deal. But when you’re looking to expand your operations into markets all over the world, it’s an entirely different ballgame.

As you grow and move into new jurisdictions, you’ll encounter a whole host of new regulations — from tax returns and statutory filing to international employment rules about payroll — and face much higher compliance costs than operating solely in one location.

Many countries require that filings and contracts are made in the local language and change their regulations frequently. Without a contact on the ground, it can be difficult to keep up. Each country will also have its own authorities and governing bodies to deal with.

For example, in the US, you have the Occupational Safety and Health Administration (OSHA) to contend with while companies operating in the UK will need to comply with the Health and Safety Executive’s (HSE) standards.

 

Compliance across borders

The point is, no two countries are the same, and when you’re trying to operate across multiple locations, things can get messy.

Late filing in Denmark could lead to your company being dissolved within a few months. In Serbia, the tax regulations are so confusing that many companies have taken to paying extra tax where they have no liability just to ensure they don’t get stung with any penalties.

If you’re expanding into Spain, it’s worth knowing that terminating employee contracts is notoriously tricky, and you’ll have to budget for a severance fee (which equates to 33 days of salary per employment year).

In Singapore, you’ll be responsible for sending the monthly payment (including both yours and the employee’s respective contributions) to the Central Provident Fund (CPF) — a key pillar of the country’s social security system. This payment has to be sent by the 14th of the following month.

A couple of notable points to bear in mind if you’re expanding into Germany is that employees can only be leased for a maximum of 18 months. After this, you must hire them permanently or let them go. Chain leasing is also prohibited, meaning the company holding the licence must contract directly with the party receiving the labour.

And if you’re global expansion journey is taking you down under to Australia, you’ll need to pay a Fringe Benefit Tax (FBT) if you’re providing certain benefits to your employees — even if a third party provides them.

Without this knowledge of local regulations, you quickly (albeit unintentionally) run the risk of non-compliance and find yourself on the wrong side of the law.

So, what could happen if you don’t comply?

There’s no way around it, if you fall foul of compliance, you’ll end up paying for it — one way or another.

Penalties come in multiple forms. The most common penalties for non-compliance are fines, which may be levied against the company or individual directors.

However, one of the most financially damaging events a company faces is having their products blocked at the border or being forced to destroy merchandise due to compliance issues. In some cases, non-compliance can even result in the mandatory closure of ALL operations within that country or imprisonment of the directors.

Even if your organisation is not given an actual penalty, the inconvenience and costs of righting the mistake, damage to the company’s reputation and possible loss of contracts could prove disastrous.

But the highest cost of non-compliance is business disruption. When found to be non-compliant, you may be forced to implement changes before business can resume, which can have a knock-on effect on other areas of your organisation.

Whether you’re looking for a PEO in the UK, US, Spain or Singapore, compliance should be your top priority. So, it’s worth seeking the help of a Global PEO with local knowledge of your chosen country to ensure you always remain on the right side of international employment laws.

That’s where we come in. At PEO Worldwide, we ensure you remain compliant at all times by taking full responsibility for hiring, contracts, employee benefits, payroll and termination if needed. To find out more about our global employment services, don’t hesitate to get in contact.

 

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Wealth Management

FOR PE TO SNAP UP “GOOD” COMPANIES, THEY MAY NEED TO WADE INTO “BAD” ECONOMIES

FINANCIAL MARKET

By  Martin Soderberg, Partner at SPEAR Capital

 

There’s no shortage of global challenges for investors currently, especially for those concerned with private equity (PE). PE and risk managers with their fingers on the pulse are turning to often overlooked opportunities in emerging markets. As Martin Soderberg discusses, while there are arguably higher levels of risk associated with such investments, the key is being able to identify good companies – and some of these may be found in bad economies.

While the current state of global markets and the enduring pandemic are anything but favourable for fundraising, some estimates indicate that up to $2.5 trillion in unutilised capital was sitting in PE houses globally earlier this year, simply waiting for the tide to turn. The McKinsey Private Markets Review 2020 reveals that $1.47 trillion of investor capital was deployed through the PE asset class globally in 2019. This represents impressive growth of private market assets under management by 10% for the year, on the back of total growth of 170% for the past decade. While, as any risk or asset manager will tell you, past performance is no guarantee of future results, the existing levels of available capital (if prudently allocated) have the potential to extend this decade of growth through the COVID-19 storm.

The International Monetary Fund (IMF) has already announced that it expects global growth to contract by 3% for 2020, representing a revised downgrade of 6.3 percentage points from January 2020. The IMF concluded that a revision of such magnitude over such a short period is an indication that the world is in the midst of the worst recession since the Great Depression and in a far worse position than during the Global Financial Crisis of 2009. While some would argue that investment in any country is potentially unstable in the current recession – evidenced by prices in investor safe havens such as gold skyrocketing to all-time highs, almost testing the $2,000 level this week – stability exists within key sectors such as healthcare and fast-moving consumer goods (FMCGs). This was exemplified late last year through Nigerian edtech learning platform uLesson’s closing of a $3.1 million seed-level round led by TLcom Capital, to address infrastructure and learning gaps in Africa’s education sector.

Martin Soderberg

Population growth and urbanisation typically drive consumption in these and other sectors. Sub-Saharan Africa has experienced growing numbers of first-time migrants into cities and leading economic nodes, with pre-COVID estimates that 50% of Sub-Saharan Africa’s population will be living in cities by 2030. In addition, burgeoning middle classes and the younger populations of developing nations is resulting in increasing levels of disposable income. At a media briefing in June, however, the IMF projected that Sub-Saharan Africa’s economy will contract 3.2% in 2020 – double the contraction forecast earlier in April. FMCGs will have taken a knock across all markets and varying recovery periods, which also ought to be borne in mind. So PE firms need to revise their approaches to investor engagement, strategy and transparency to convince, secure and guide investor capital into emerging markets presently.

 

Finding the right quality asset

There is of course a definite need for macro analysis of the country your investment or acquisition target is stationed in. Along with the six different forces macro environments typically consist of – namely Demographic, Economic, Political, Ecological, Socio-Cultural, and Technological – under the current coronavirus circumstances additional consideration by investors and risk managers also needs to be given to the COVID-19 policies and responses being implemented by the countries these companies operate within, as well as the fiscal measures being implemented. Although these are particularly complicated and extraordinary variables to attempt to measure, their impact on GDP contraction as well as debt-to-GDP ratios within the countries concerned can potentially be forecast in the short- to medium term.

With this in mind, it’s worth identifying scalable entities with realistic potential for regional expansion where instilling a balanced measure of operational and strategic influence is possible at management and board levels. A recent example is PE firm Mediterrania Capital Partners, which focuses on growth investments in SMEs and mid-cap companies in North and sub-Saharan Africa, acquiring a stake in Akdital Holding, which operates five clinics in Morocco.

It’s important that liquidity management takes precedence over solvency, which often serves as an indication of top line growth. At the same time, one must also take into account worst-case scenarios within the markets one is investing in and plan accordingly for crisis scenarios, such as debt, liquidity options and operational costs that can be scaled back.

In addition, micro and macro risk management should be thorough, particularly in light of escalating trade wars between developed nations and instances of seemingly nationalistic legislation being passed that may be unfavourable to specific emerging markets and spur further GDP contraction. Furthermore, evaluation of local political risk and the potential for obstruction or intrusion at investment and operational levels should be borne in mind.

The lockdown conditions associated with COVID-19 have also significantly impacted logistics planning and provision, across borders to neighbouring states as well as overseas. Furthermore, we’re in a period of increased currency volatility which has a knock-on effect on export and import potential. However, such limitations create broader opportunities for PE firms to generate further value by concentrating greater focus on ESG in the markets in which they already operate. Such focus is typically undervalued, yet has the potential to generate greater revenue while ultimately attracting further investment – providing firms are willing to transparently evidence tangible progress..

 

PE and foreign direct investment scepticism

When entering and engaging with companies that have scalable investment potential in emerging markets, one should expect varying degrees of caution by companies in emerging markets, which is sometimes misinterpreted as protectionism. Historical injustices in many Sub-Saharan nations have understandably dented local confidence in foreign direct investment. Furthermore, companies will be wary of recurring instances where opportunistic investments by PE entities rendered relatively worthwhile returns for investors but created debt rather than any genuine value for the company concerned.

Therefore transparency and the ability to wear your PE credentials on your sleeve is paramount, such as evidence of accelerated revenue growth, increased capital expenditures and expanded profit margins in the financial reporting of your existing portfolio. If your portfolio is little more than smoke and mirrors designed to conceal debt as well, slowing revenue growth or capital expenditure as a percentage of sales declined and little evidence of revamped strategies and additional management perspective, then you’re setting yourself up to fail.

There will be continuing debate for some time to come as to whether reluctance to invest in emerging markets will be a PE stumbling block, given the hunt for yield. Thoroughly investigated company investment opportunities have to be afforded genuine investment value in terms of expansion and enrichment, not only for yields to materialise but also for the yields to be worthy of the investment itself. While now is the time for PE firms to begin putting in the groundwork, as much as an additional year, by conservative estimates, may need to be factored in before capital can realistically be deployed. But for those who carefully identify unwavering trends in emerging markets over the next six to 12 months and articulate genuine opportunities to investors, there is scope for the PE asset class to exhibit substantial growth over the course of the coming decade, while capitalising on the “good” companies blooming in “bad” economies.

 

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